When The Speed Of Light Is Too Slow: Trading at the Edge

The limit to signal delay imposed by the speed of light is starting to affect how well companies can do arbitrage trading.

Typically, the latency for HFT trades is now below 500 microseconds. Traders in the same city can achieve that by optimizing their computers, network hardware, and software for speed. But when it comes to trading between cities — or worse, between continents — the speed of light, not routing or traffic delays, actually becomes the limiting factor. (It takes at least 66.8 milliseconds, more than 100 times longer than 500 microseconds, for light to travel between two points located at opposite sides of the Earth, for example. This doesn’t include delays from the electronics and the fiber itself.)

Which means where you locate your trading office can affect how well you do business. Not surprisingly, the first-order solution would be to place your office at the midpoint between the two offices where the trades will occur. It will be interesting to see if people actually start doing this.