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Slowing Down A Stock Exchange With 38 Miles Of Cable

28612 ratings | 874224 views
High-frequency traders have a few tactics on stock exchanges: but simply put, they gather price information faster than anyone else, sometimes even faster than the markets themselves, and use that to make a tiny profit many, many, many times. There are all sorts of solutions: but it turns out there's a simpler one that involves physics. Thanks to Ronan and all the team at IEX - you can find out more about them here: https://iextrading.com/ or on Twitter at https://twitter.com/IEX I fact-checked Ronan's claim about the SEC white paper because it seemed a bit too good to be true, but he's right: see Hu, E. (2018). Intentional Access Delays, Market Quality, and Price Discovery: Evidence from IEX Becoming an Exchange. SSRN Electronic Journal. https://www.sec.gov/files/07feb18_hu_iex_becoming_an_exchange.pdf [PDF] Edited by Michelle Martin (@mrsmmartin) I'm at http://tomscott.com on Twitter at http://twitter.com/tomscott on Facebook at http://facebook.com/tomscott and on Instagram as tomscottgo
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Text Comments (1071)
Tom Scott (4 months ago)
Apologies for the patchy video quality in places here: my camera really did not like the lighting inside IEX's offices. And to be clear, this isn't sponsored, I just found out about the cable loops and emailed IEX to ask if I could film with them!
Ted Phillips (2 months ago)
It should be a requirement all stocks must be held for 24 hours before being sold. We workers are all paying the price for these skimming operations. We know how the Mafia deals with such problems.
Abdega (2 months ago)
These techniques do not work on time travelers such as yourself however
Rene Schickbauer (3 months ago)
+chris vighagen Old computers sometimes used mercury delay lines. And the PAL TV recievers used ultrasonic delay lines for color decoding.
Tyler Durden (3 months ago)
Interesting video
Donald Sleightholme (3 months ago)
Tom Scott with photovoltaic fibre optic cable, we could send data and generate electricity at the same time (maybe) 🤔😯🤷‍♂️
Sevendogtags (11 days ago)
How does 38 miles take 350us to travel with speed of light?! It should be a LOT faster, shouldn't it? Is there more to this setup up than spools of cable?
Raccoon (28 days ago)
*NO ONE THAT IS A RETAIL TRADER NEED WORRY ABOUT THIS, YOU CAN'T AFFORD THE SERVICE ANYWAY*
Lee (28 days ago)
Greed. All exchanges should be nuked. All investors hanged.
kethmar hkfy7luf;. (1 month ago)
38 miles of cable does not introduce >300ms of lag. That would mean playing a game one the west coast from the east would have 10's of seconds of delay. This guy is an idiot.
Ryan F (1 month ago)
0:46 The pigeons show the true side of the NYSE when a great share pops up.
Michael Frymus (1 month ago)
I dont get it.. but okay. I dont even know why im here tbh
nikoladd (1 month ago)
Technically it's a solution that uses reality, but is built based on physics, which is a model of reality.
Noob IsTreasure (1 month ago)
Dang!!! MIND BLOWN!
Supernova Kasprzak (1 month ago)
I already knew about this thanks to the book _Flash Boys_ by Michael Lewis, and his book makes clear just how much of a boon this one exchange is, and how difficult it was to get banks to trade on a fair market.
San the Man (1 month ago)
Isn't that a pattern day trader and isn't that illegal?
If i bring a scissor there, all traders will hail me
Skunky Monk (1 month ago)
Sounds like a scam, delaying the data gives the owner more time for analysis for dirty deeds.
David Fong (1 month ago)
Im sure IEX is heavily regulated and has the SEC on their ass constantly so that no employees take advantage. Even if they did, they would have to physically connect to server by bypassing the coil in a room that 100% has 24/7 camera coverage, security access restrictions and logs, etc. What the coil aims to fix though are actual scammers. They game the system with an unfair advantage by literally being able to trade faster than other people because the other people can not physically know the price change before the high frequency trade scammers have traded their shares.
Voice IT (1 month ago)
ok, so they introduced a delay for all people. but if it's the same for everyone than the ones nearest by and with the fastest connection are in advantage again...
StuntpilootStef (1 month ago)
I think it's great. You can't hack a cable. It can't crash, you can't find a security exploit. It's a very elegant solution.
Bret Mohler (1 month ago)
this would have been where RealPlayer could have cornered the market...years ahead of their time..and still Buffering..
Carl Klinkenborg (1 month ago)
Buying and selling practically non-existent things at a value based on rumour is an insane way to run the world. Period.
Carl Klinkenborg (1 month ago)
+Bret Mohler The world gets nowhere fast by being an arse. :-)
Bret Mohler (1 month ago)
+Carl Klinkenborg no problem..I wasn't sure if you were being a little tongue and cheek or really didn't have a full picture of what trading does in the larger view of our economy, which many don't fully understand and can't say I do either so tried to be understanding of that. But thanks for keeping it civil out there haha
Carl Klinkenborg (1 month ago)
+Bret Mohler Thank you for your detailed reply - I was being somewhat flippant but you hit the nail on the head in saying it (the value) '...is mainly backed with confidence not gold anymore...'. This was entirely the thrust of my comment, and thanks are due for your succinct analysis of the real world! I blame The East India Company ;-)
Bret Mohler (1 month ago)
i mean not really..you are buying stake in the company and as a result that gives them capital to grow which then increases their value in production of goods, services, jobs, real estate .. and now the piece you purchased .. kinda like a lone with interest is more valuable ..hopefully that is.. and you can then sell it for profit. so the stock is a non-existent thing outside a record, but i mean so it cash really as it is mainly backed with confidence not gold anymore, but the investment is very real. Start ups that are not public have to raise capital from investment firms who make that same gamble..but then with an IPO, and hitting the exchange, now anyone can invest in the company because maybe they see value and growth potential .. or feel it is trending enough with others that they can make some money but there are very real things tied to these non-existent stocks..though some have fooled many and faked the future of a company inflating the value and in that instant..you are right. there is nothing. but that is not the norm.
aikimark1955 (1 month ago)
Read Flash Boys by Michael Lewis
Kerisu the Cynic (1 month ago)
NEW YORK STOCK EXCHANGE FOLLOW US ON PINTREST WE'RE INTERESTING WE SWEAR
Mateus Figueiredo (1 month ago)
0:15 "NYSE - Follow us on Pinterest"
Mateus Figueiredo (1 month ago)
Does everyone go through those 61 kilometers of cable, or do their clients have a shortcut?
Mateus Figueiredo (1 month ago)
Slow traders are traders that take 350 microseconds more? wow
FalconX88 (1 month ago)
I don't get it. They have 38 Miles of cable and say it's a delay of 350 microseconds, so abut 9 microseconds per mile. I can ping a server in Munich which is 9600 miles away (direct distance) with 170 ms, but that's round trip time, so >19200 miles in 170ms which equals about 9 microseconds per mile, but the actual distance is much, much longer and it goes through several nodes on the way slowing everything down even further. So why is my signal considerably faster than theirs is? Light should do a mile in about 5 microseconds, in optical fiber it is usually about 30% slower that should be 7 mircoseconds per mile so where do the missing 90 microseconds come from?
The Khan (1 month ago)
I'm still confused about all this trading stuff!!!
Flamin (2 months ago)
The original reason they used "only physics" rather than software wasn't to make the system more reliable. It was because the software was owned by the Royal Bank of Canada. "Flash Boys", a book about the start of IEX, gives the story.
Galaxis (2 months ago)
Genius! Well, that seems like the right solution to me. Every exchange should do this.
Richard S. (2 months ago)
What? The footage is from November? I don't know. I suppose it's technically fine. But some part of me is disappointed somehow. I know it shouldn't probably matter. I'm sorry.
katelyn ast (2 months ago)
that makes me feel better about wasting 2 years in hs physics classes
Donald Tramp (2 months ago)
Hello Sir. Thank you for the info. Question: Can any one open and trad on IEX? How to open a trading account on IEX?
Michael Calvano (2 months ago)
Hmm what optic/fiber combination do they use that has a distance capability of 38 miles? Must be gigabit singlemode I guess.
Bo Dan (2 months ago)
Is this not equvilant to making counterfeit money? Should be illegal. edit: I mean the high frequency trading. Not the "speed bump".
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David Reynolds (2 months ago)
I have literally no idea how stock markets work. The jargon, the “products”, “positions”. I like to think I have a decent grasp of history, geopolitics, the sciences etc. But finance, stock markets etc. Nope. Nada. I just felt the need to share 🤷🏻‍♂️
DynamicWorlds (2 months ago)
A lot of that is by design to hide what's actually going on. For a simple example, plenty of stocks don't pay dividends or give voting rights, meaning they meet the definition of a Ponzi-Scheme.
Hans Hoerdemann (2 months ago)
???
greenie2600 (2 months ago)
Anyone else getting a reptilian vibe from the stock exchange guy?
TMCicuurd12b42 (2 months ago)
This video is missing critical information because, as is, it make no sense whatsoever... Why would I, as a client, want to use these guy if they are adding 350 us of lag? How is that ensuring I get the best price on a trade? TILT. I listened to this like 3 times...
Daniel Adams (2 months ago)
Mr Donald Earl has really helped me make a fortune from Stock Exchange
Max Loh (2 months ago)
Yes, as stated in the video, you can just wait however long you want in the software. The rationale for using 38 miles of cable is extremely tenuous. It's a publicity stunt.
FoxxNautics (2 months ago)
The birds wanted to be in the spotlight!!
Dan (2 months ago)
Interesting, a slightly more "fair" Ponzi scheme.
Phil Dem (2 months ago)
Very interesting👏🤓
lao backer (2 months ago)
i put all that cable throw me and then i would be the internet
Nafrayu Miriyu (2 months ago)
27.000 dollar lag switch OMEGALUL
Mike Mondano (2 months ago)
How incredibly clever. So many things become needlessly complex because people forget to look at the basics.
armycadets (2 months ago)
But the real question is who actually wants to follow the NYSE on pinterest
boson96 (2 months ago)
I read in the comments that they do this when a new company is planning their IPO. Pinterest is planning to launch on NYSE so they are kind of advertising that. They did the same for snapchat.
Rob Bessell (2 months ago)
.......and this is where Dice host their Battlefield Servers
Joshua Sweetvale (2 months ago)
Clever. Exceptionally clever in its simplicity.
Travis Gamble (2 months ago)
As someone who works with fiber optics on a regular basis to speed things up, it's very unusual to see it being used to slow things down...
bilditup1 (3 months ago)
...so did you credit Michael Lewis, since this is basically 'Flash Boys' in video form?
bilditup1 (2 months ago)
+boson96 Well, having read the book would probably have helped. The issue with both this video and Lewis's book is that it's a bit too vendor-y. It makes the claims seem sketchy even if they're true.
boson96 (2 months ago)
Damn, this is the fourth time I have seen this book mentioned in the comments already. Is this why I don't understand this video completely?
Soviet Loli (3 months ago)
Stock exchanges are like an absurdist satire of capitalism. But they're actually real.
Leo Rautenberg (3 months ago)
Tom, what did we say about trying to shut down money
tonstad39 (3 months ago)
What i’m wondering is why trading needs to be so instant like that.
suprvideo (3 months ago)
At 2:38, 3*10^8 m/s * .00035 sec = 105km, but they're using 61km. Why?
suprvideo (2 months ago)
As others have explained in this thread, they're only trying to level the playing field for the few ultra-fast trading companies, ensuring that everyone's computers can know what the stock is doing. The unfair advantage has arisen where some ultra-fast traders have known what price direction is occurring before even the stock exchange knew about it. It has nothing to do with physical distance from the stock exchange, but about computers getting information a few microseconds faster than others. For the majority of traders, this 350 microsecond delay has absolutely no impact.
boson96 (2 months ago)
+suprvideo But why choose only 350ms delay? wouldn't the person farther than 61km still be at a disadvantage by being slower than the ones within that range?
suprvideo (3 months ago)
As Sebastian Jezierski points out in the comments for this video, the speed of light in glass is 1.5x slower than in a vacuum which accounts for some of the difference. The speed of light in a given medium is decreased in proportion to the refractive index of that medium.
PyMike (3 months ago)
Great Content. As Always!
Hélio dos Santos (3 months ago)
Flash Boys (the book)!
Ben Marchiony (3 months ago)
Hey Tom, I'm a big fan of yours, and I'm think I might start my own channel. Which camera do you use for filming? Which video editing software do you use?
Davis Schina (3 months ago)
3:40 What are you, Trump?
boson96 (2 months ago)
"I am very rich, folks. I have a LOT of money"
Alvin Soehendry Wijaya (3 months ago)
I dont understand this system. I mean if you want to buy why not buy it from other exchange for faster. If the stocks are not exclusive trade on this exchange this mean everyone get advantage and this stocks is unwanted. I mean they are the latecomers.
Lohan Cindy (3 months ago)
“If everyone is super then no is” Syndrome
Alican Gül (3 months ago)
Capitalism is so efficient (!)
iamlatsku (3 months ago)
Damn. I really though Tom would take 38 miles of cable to a stock exchange and troll everyone by somehow slowing it down with the cable. :D
Audrey Mciver (3 months ago)
There needs to be an investigation on any stocks that i have. or had. because with all the red flags i was getting i suspect this may be an issue. but me not having acess to my information and not knowing if i do have stocks how do you know what you have and there needs to be a way to report and incident or a red flag indication button to alert identidy managment and security compliance .
Ray Mak (3 months ago)
Speed wins
boson96 (2 months ago)
Tell that to the tortoise.
jimmyhackers (3 months ago)
theyre building a system thats designed to fail...
jimmyhackers (3 months ago)
AWWW i was hoping for som RATM action
Ievgen Ishchuk (3 months ago)
oh please, this ain't something new. just finished reading the 'Flash Boys'?
Jeroen Feher (3 months ago)
Oh no. Whoever could it be who objected to having latency introduced into the system. Surely it wasn't anyone who had something to gain off of this system.
Shadman Sudipto (3 months ago)
Awesome I didn't know any of them did this 👍
Will Devereux (3 months ago)
T series
Sooo... They've created a multi-billion dollar lag switch?
Joe Hernandez (3 months ago)
Good video bro
Brian Boni (3 months ago)
Tax these transactions the same way almost everything else is taxed and this problem will go away. This cable "solution" is the definition of an arms race and will only last as long as they figure out a way around it, if they haven't already.
Brian Boni (2 months ago)
+boson96 You go to the store and buy something and you pay tax on it. You got and buy magic stocks and there's no tax! It's a transaction without a tax.
boson96 (2 months ago)
+Brian Boni It works differently for us peasents. The overlords have an inherent advantage.
Brian Boni (2 months ago)
+obliviouz "taxed the same way as all other profit" If only profits are taxed then I should be able to deduct all my expenses from my wages and only pay tax on my savings for that year.
obliviouz (2 months ago)
Transactions are usually not taxed - only profits are. And these profits *are* taxed the same way as all other profit.
Ristube (3 months ago)
I have a picture of myself where you’re standing at the beginning. I was flipping the Trump building off where you’re camera was setup. 🤮🤮🤮🤮
Frank Harr (3 months ago)
That is really interesting. I'm going to have to watch it again. Are you going to the Boston area? Also, kilometers?
Justice Warrior (3 months ago)
Buy high sell low Right Bogd??
Alejandro Carbajal (3 months ago)
you look like a child and adult at the same time
MissJubilee (3 months ago)
I read a book about the founding of this exchange some years back. I’m excited to actually see those big spools of cable!
James Kelmenson (3 months ago)
Last line
Asheville Trainman (3 months ago)
Lmao “there’s a cut in this line and I need you to find it”
🤤
Woop (3 months ago)
38 miles of cable is nothing. Have you ever seen a CVS receipt?
boson96 (2 months ago)
Lmao
Eugene (3 months ago)
That's how Mafia works !
2000000 33 (3 months ago)
Waste of technology
Anthony Kernich (3 months ago)
Surely that thing would generate a big magnetic field?
Alistair Rogers (3 months ago)
FLASHBOYS!!!
James Allen (3 months ago)
Can I hook up an XBOX controller to that "game" and f**k with the market in real time? lolol
vwsaiphone (3 months ago)
Gordon gecko greed is good
McKenzie Brennan (3 months ago)
Tom. There’s a podcast that stole the idea of Citation needed. Not just the idea but the name as well. It wasn’t created before yours. I checked. I don’t know if you want to take them down for stealing your idea and show but I think that would be a good idea. I am so angry at them
McKenzie Brennan (3 months ago)
Best part is is that they say that they came up with the idea themselves
hyou zan ren (3 months ago)
Robots already taken stocks market jobs!... What next?
krudtgutten (3 months ago)
Love your accent
John Smith (3 months ago)
Physics will never let you down :)
Stefan Reich (3 months ago)
And now you just have to understand that all that trading is basically nonsense.
bighands69 (3 months ago)
The problem is not the speed of the signal travelling through the cable. The problem is the switching equipment and software that interprets the signal.
Matthew Stinar (3 months ago)
350 microseconds? How about we try 3.5 seconds!
SoniEx2 (3 months ago)
ooh, nice pingfs.
spdzodzo (3 months ago)
hello, my question is slightly off, is it a pedestrian zone that's outside the stock exchange? I don't see any cars there so it's an unusual sight of New York for me
Eugene Balfour (3 months ago)
Yes, it's a car-free zone
Elliander Eldridge (3 months ago)
I wonder if the stale mate would incentivize the companies to invest in quantum teleportation technology for an immediate advantage.
The Fumbler (3 months ago)
all i learnt is that they have a bunch of cable to make things slower.
B Things (3 months ago)
This was really interesting! Sometimes, it feels like everything digital has been abstracted away into software. It was nice to be reminded of how important hardware can still be!
fckt3hp0l1c3 (3 months ago)
so the marketplace has 350ms to control the market?

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