What has to do a stealth bomber with High Frequency Trading?
I watched recently an amazing talk at TEDGlobal titled How algorithms shape our world .
The speaker Kevin Slavin epresents an interesting point of view on the increasing dominance of algorithms on our lifes. His thesis, however, has nothing to do with sci-fi, philosophy or humankind’s social relationship. It is about physical earth transformations. Algorithms are changing our life because they started to shape our world. Does this sound strange? Not so much.
Think on what Spread Network did in 2010. They have digged secretly for 827 miles, putting a fiber optic cable from Chicago (home to the Chicago Mercantile Exchange) to Carteret, New Jersey (home to the Nasdaq data center), paying a cost of $300 million USD.
They perfored mountains, crossing bridges, small or big cities, farms and any kind of private estates just to keep the wire as straight as possible. And for what goal? Make HFT algorithms able to take advantage of the fastest travel speed.
But this is not all. Actually, in all cities that hold a stock exchange, the estates around the exchange build are extremely expensive. That’s because all HFT firms have interest in buying offices or apartments in the neighborhood, empty them, reinforce every floors with steel, and install their data servers. Just to make their HFT activities faster then their competitors located in offices down the city, maybe few miles far.
Slavin’s talk shows many more examples, and also some of the biggest algorithms’ failures. The algorithm that decides books prices on Amazon bookstore, and the funny story about a book with a price of $24 million USD. Netflix’s algorithms for recommendations that can predict about the 60% of all the rented movies.
But the most interesting anecdote is about a stealth bomber and an hungarian physicist that after the Cold War, decided to move in USA and work in financial trading. But I am not going to tell anything on this… now you have no more excuses for not to watch the video.