High-Frequency Trading: The Nanosecond War Inside the Stock Market

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Light moves about 30 percent slower through fiber optic glass than through open air, and in high-frequency trading that gap is worth fortunes. Firms have built private microwave networks between Chicago and New York, studied shortwave radio that bounces off the ionosphere, and placed their servers in the same rooms as exchange matching engines. This episode explains what those machines are doing: holding stocks for seconds, ending each day flat, and collecting fractions of a cent on millions of trades.

The numbers are striking. By 2009, firms making up about 2 percent of U.S. trading firms initiated 73 percent of equity order volume. Supporters say the competition narrows spreads and makes trading cheaper. Critics see a toll booth on every investor. The episode walks through the strategies, from market making and news-reading algorithms to illegal quote stuffing and spoofing, then revisits the flash crash of May 6, 2010, and the speed bump that the IEX exchange built in response.

Execution times fell from seconds in the early 2000s to nanoseconds today, a span in which light travels about one foot.
Quote stuffing floods the data feed with orders that are instantly canceled, forcing rival algorithms to lag while processing useless information.
The flash crash began with a $4.1 billion futures sale by mutual fund Waddell and Reed, and algorithms then passed contracts back and forth in what regulators called a hot potato effect.
During the crash Accenture shares briefly traded for a penny while other securities spiked to $100,000.
Brad Katsuyama's IEX routes every order through coiled fiber that imposes a 350 microsecond delay to blunt latency arbitrage.

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