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)
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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!
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.
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.
+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
+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 ;-)
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.
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 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.
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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 🤷🏻♂️
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...
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.
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.
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.
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 .
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.
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
Uploading contracts to an online database should not take too long, and with the right solution, there should be a way to quickly drag and drop them into folders. Of course, the contract management team may want to give some thought as to how those folders are categorized. In some industries, it may make sense to classify them by agreement type, whereas in others they may need to be grouped by timeframe or date. It is obviously important to do what makes sense for your company and to ensure everyone understands the classification system that is instituted. With this sort of well-oiled system in place, it is a lot easier to keep a handle on things.
Divide and Conquer.
This is another area that is very industry-dependent, but it is highly unlikely that any company can afford to have an entire contract team devoted to managing one portfolio. More than likely, it is more realistic to divvy up the team and the contracts so that there is a leader for each relevant sphere. The entire team will obviously have to coordinate and communicate, but resources must be allocated in the most efficient manner possible. In turn, this will allow for several individuals to keep an eye on a smaller batch of contracts, thereby facilitating those periodic reviews.
Outsource the Tedium to Technology.