Stock exchange trades now happen so quickly that the speed of light has become a factor, and exchanges may have to be relocated as a result, say researchers.
Physicist Alexander Wissner-Gross of MIT and Harvard University and his colleagues examined whether there would be advantages to decentralizing exchanges – and, if so, where they should go.
They concluded that putting an intermediate trading center between two major centers is advantageous if the trading is rapid and auditable. Using a formula they’d developed, they found that there is always an optimal trading position located between any two points on the Earth, with many, of course, in rural areas.
The problem is that trading now happens so quickly that it’s hit something like 90 percent of the speed of light. This can cause a competitive disadvantage for a trader who’s physically a long way from the market.
Rather than consolidate trading at places like the New York Stock Exchange, they say, the analysis calls for treating the planet itself as one giant trading floor.
“We show that there exist optimal locations from which to coordinate the statistical arbitrage of pairs of spacelike separated securities, and calculate a representative map of such locations on Earth,” say the researchers.
“Furthermore, trading local securities along chains of such intermediate locations results in a novel econophysical effect, in which the relativistic propagation of tradable information is effectively slowed or stopped by arbitrage.”
If companies take note of Wissner-Gross’s conclusions, it could lead to new data centers in rural areas, or even on barren islands in the middle of the ocean.