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Why Arbitrage Opportunities Disappear in Milliseconds: Inside High-Frequency Trading
When Spread Networks spent $300 million carving an 827-mile straight-line fibre between Chicago and New Jersey in 2010, it trimmed round-trip market latency from 17 ms to 13 ms, charging hedge-fund subscribers a fortune for each borrowed millisecond. The advantage barely survived a fiscal quarter: by 2014 microwave relays strung across Midwest grain silos pushed the same hop below eight milliseconds, because light travels faster through air than glass.
Today the battlefield is measured in metres. Trading firms rent racks inside exchange data-centres and replace software with field-programmable gate arrays that answer a price flicker in under 100 nanoseconds—about the time light needs to cross a playing card. Even the market’s “official” tape lags: the consolidated SIP feed, once six milliseconds behind, is down to 0.015 ms, yet direct feeds still arrive first, letting algorithms foresee and cancel orders before the public quote posts.
Statistical crumbs add up. Virtu Financial’s IPO filing flaunted one losing day in 1,238 because its machines rarely offer a rival the same mis-price twice. With fibre and microwaves approaching physics’ limits, speed chasers are testing short-wave radio that hops over the horizon or burying secret optic lines beneath Ontario cornfields, hoping to seize a microsecond of quiet before competitors tune in and the arbitrage evaporates.
