Wall Street – Faster or Better?

// Posted by on 06/04/2015 (7:32 PM)

When I read the article Raging Bulls: How Wall Street Got Addicted To Light-Speed Trading I immediately had a mental image of the stock market trading floor. Men and women rushing around multi-tasking-talking on the phone, emailing, talking to colleagues and all the while watching the numbers and multiple monitors ever so closely. It’s interesting that the article begins talking about “flash failures” that are occurring with increasing frequency as traders want more and they want more…faster!

Time is of the essence when trading on Wall Street or any other trading floor location. The goal is to make the trade as quickly as possible and to send and receive data at warp speed. But, is the infrastructure that is currently in place sophisticated enough to provide what traders are seeking? Apparently not according to investors who are looking to make lots of money in short periods of time. Will the need for speed increase errors? Or will it turn the ordinary trader in to a superman or wonder woman. People who are forever striving to increase what they and the market technology can produce. I’m reminded of the movie Wall Street with Michael Douglas and the cut throat environment among the employees. Who would make the next sale and for how much?

As we read, “faster and faster turn the wheels of finance, increasing the risk they will spin our of control.” We read that machines can operate faster than humans and “intervene.” What does this mean for the market trader? It means competition and probably hasty decisions with non-profitable end results. If a machine can make investment decisions based on data faster than an individual can make the same decision based on assessment of data and the state of the economy, where does that leave the workforce? Will it one day be obsolete or at the worse, decreased tremendously? If market trends can be analyzed by computers, who needs employees, right? Well, not so fast…servers and fiber optic cables are privy to hacking and failure for technological reasons. Machines can’t replace people in all aspects of market trading. People need to build and install hardware and cables to make the process function. But is it ever fast enough? That’s the question.

Data travels as lightening speed from one machine to another and from one geographic area to another. We read that often data is outdated by the time it arrives to its destination. This “need for speed” is why Wall Street is addicted to high-speed trading. There will always be faster competition coming along to replace existing networks. Companies are developing new and better fiber optic cables to reach from point “a” to point “b.” The field is driven by competition and sales. Manufacturers of cable are constantly needing to upgrade to stay marketable. Algorithms are written by people and they are changing as fast as the market is trading. This cycle of faster and faster – how does it affect the overall economy? Well, first, a higher volume of trading has to take place to make the same amount of money as the technology and data speeds increase. People are working harder and harder for the same return. Trades are executed to the thousandth of a cent to be competitive – not by traders but by computers. Things are happening so quickly on the computers that the average trader can’t keep up.

The company BATS who offered an initial public offering of its stock, closed down other companies because of a glitch in the system just seconds after trading opened. Because of a software glitch, trades were frozen and this affected other companies who operated on the same server.  Perhaps this was a true “glitch” in the system but it also presents opportunity for bad behavior by someone who might not want an IPO to be successful. Like anything else, there is the good and the bad. Stock prices are inevitably going to be affected by new technologies and financial activity. And, greed is going to be present in all areas of the market.

I can’t pretend that I understand how the stock market functions or that I really want to, but I do understand competition and stability. Competition is high in the stock market among traders and stability is low. Low stability, I think is due to the fast moving parts and the desire to move even faster. Will it ever be fast enough? It will be interesting to see how data driven functions will affect the stock market in years to come. If we’re at light-speed trading today, what could it look like tomorrow?!

Watch this clip of Gordon Gekko (Michael Douglas) talking about greed in the market and why it is “good.” From the movie Wall Street…


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Rosatelli said...

Hi Lois,

Faster, faster, faster is right! We talked about this a bit in class on Monday: has digitization really given us a revolution, or has it just made things faster? We already had global communication, television, etc., now we have those things, but faster. Do you think this is a sound argument? If so, when does the “fast” end? To we hit a critical speed that will just be the wall, or do we begin to slow down? We can also think about faster being better as it relates to machines being superior to humans. Machines cannot be victims of poor judgement or sleepless nights. They are only as fallible as their programming and infrastructure, but humans are infinitely fallible. Are we better off leaving certain things to computers? Driving our cars, or trading our stocks? What is the balance? How does all of this fit into the .dom rhetoric of the 1990s? Have we learned anything?

// 06/04/2015 at 8:38 pm

Kindall said...

Lois: I think you make some great points. I also loved the clip!

Within all of that, I have to ask whether or not he is right. Is greed good? Does it save us?

While it creates a contained bureaucracy, I think it does save us. It does push us forward. It fuels capitalism and democracy. Maybe a manager’s stake is smaller but these major stakeholders and investors help define the worth of that manager’s business and livelihood. They take interest; they invest money.

Is it wrong for them to hold the majority share? I don’t think so. It seems that people are angry at just how much of a stake these major players hold… but imagine if they hadn’t taken the risk or purchased the stock. How would that deplete the worth of the company/product?

What are your thoughts?

// 06/05/2015 at 2:39 pm

Shirley said...

Very insightful post! As I read through the material I also envisioned someone ringing the bell and young men in suits rushing around and making quick decisions then throwing lots of paper on the floor.
I gathered that these computers worked so quickly that after a trade was performed, it could more quickly than humans determine a fluctuation in price. Then make adjustments before much if any damage could happen. Then my mind drifted to Portnoy working like a rat on a treadmill to find the computer programs vulnerabilities and hack the heck out of it then using it for his own benefit and then moving to Tahiti.

// 06/05/2015 at 4:58 pm

Ginger said...


As I read your post it reminded me of something. It reminded me of the VCR. Remember the VCR and when it came out how excited everyone was about being able to watch movies and most especially about being able to tape TV shows. I received a VCR for Christmas in the late 90s and thought I had been given a million dollars!

With this new technology, remember where I grew up there was no cable, heck there were only 3 channels on the TV, there was a learning curve. You had to read the owner’s manual to hook it up, record shows, play tapes, and set that f’n clock. When the VCR was flashing 12:00 you knew something was up!

My point, and I have one, is that I totally agree with you about not understanding the stock market or maybe not even wanting to, but I think we need a basic understanding. We need to at least be able to set the clock. If not we will get left behind and/or taken advantage of.

Speed of trades, it will get faster, think about where the VCR is now. We need to try and keep up. To prove my point, I tried to watch the clip and Flash is out of date on my computer. F’n flash!

// 06/06/2015 at 8:29 pm

David said...

I agree that it makes total sense as to why there is a desire for high speed tra

// 06/06/2015 at 9:55 pm

David said...

…damn touch screen computers…

I agree that it makes total sense as to why there is a desire for high-speed trading. What I really don’t understand is who cares? Why should I care? It’s certainly cool, but how does it make a difference in what I do?

How will this digital expansion impact the average person? I don’t know that it will, but good for those it does impact for coming up with ways to do things better and more efficiently!

Maybe it’s better that activity on the NYSE be digitized? Maybe there’s a way for these methods to help the U.S. get ahead of other countries? How can this help our economy be the best?

I certainly don’t think it’s anything worth worrying about. In fact, if the findings made by this technology and infrastructure are able to make more day to day tasks easier and more efficient, then I would say job well done!

// 06/06/2015 at 10:01 pm