Category Archives: Trading strategy

Colocation beats the speed of light

This paper demonstrates that traders gain nothing by positioning their computer at the midpoint between two financial exchanges — for example on a ship in the middle of an ocean — contrary to the recommendation in the article Physics in finance: Trading at the speed of light (Mark Buchanan, Nature, 11 February 2015). We show that, in fact, a trading strategy using cooperating computers colocated with the two exchanges will perform much better than a single computer located at the midpoint. This advantage of distributed trading strategies is non-obvious and — to my knowledge — has never been explained as simply and convincingly as in this paper. In the final section I examine the reverse issue: using distributed exchange server architectures that eliminate the need for distributed arbitrage strategies.   Continue reading Colocation beats the speed of light