One didn't realise that one has spent too much mucking around with photographs and politics and other far too exciting bits and not enough on the geeky hard sciences bit. One realised so when one was sent a press release on execution speeds on the NYSE and NASDAQ. The operative bits of the press release are:
NYSE Arca, NYSE Euronext’s all-electronic U.S equities exchange and already one of the fastest equities markets, is further speeding up its order execution time with the implementation of the company’s Universal Trading Platform. NYSE Arca customers are experiencing roundtrip executions of 650 microseconds for Nasdaq-listed issues, and 950 microseconds for NYSE- and NYSE Arca-listed issues, which generally have deeper books and more orders.
The release helpfully goes on to explain that a microsecond is one millionth of a second. For those who might not be familiar with the arcane bits of electronic trading, let me explain albeit with some massive simplification.
Basically, when you want to buy one stock on a stock exchange, you power up the website, select the stock that you want to purchase, the quantity and then hit enter. That goes off into the great broker system. The broker will either fulfil your order from its own holdings or route the order to the exchange. As soon as the order electronically leaves the computer gateway of the broker, the stopwatch starts. The order goes into the exchange, finds out a seller for that amount of stock, agrees terms, and then a notification that a sale has been agreed is sent back to the broker. As soon as the notification hits the inbound gateway, the stopwatch stops. This is the round trip that the press release is talking about.
Given that the vast majority of transactions are electronic like this, every “bit” of faster communication with the exchange means that you get in your order (for buying or selling) before the others. So there is an electronic arms race. Its gotten so bad that people are jostling to actually site their own gateways (servers) physically next to the exchange server boxes. The brokers have absolute squads of people trying to tighten and reduce the round trip time, they are investing in better hard disks, faster communications, better networks, ever tighter coding, all in an effort to squeeze out more and more time from this round trip. I have even heard a rumour that one head of market data networks in an investment bank has linked the bonus payments of his coding chaps (has divided them into three teams) to the number of micro seconds each improves per month. Now there’s a motivation :).
If you wanted to comprehend what 650 microseconds is, then you can perhaps picture it in this way. In 650 microseconds, light would have travelled 195 kilometres. The distance between New Delhi and Agra is about 180 kms (as the crow flies). Add another 15 for navigating around cows (sacred or otherwise) and that is the distance that light will travel in the time taken by an order leaving a broker, getting executed and getting back.
Another way of thinking about a microsecond is to see these pictures which were taken with a flashgun which fired off a microsecond burst of light just when a 0.22 rifle bullet hit these objects (there’s the damn photography again). Couple of examples are given below:
Ok, this was a strange post, but what the heck, one wanted to get back and get one’s hands dirty with some tech and numbers.