Time is Money

William Poundstone started off his book Fortune’s Formula in the age before live transmission of sports and before long distance phone calls. That meant there was a few minutes delay between the time a race at the racetrack got over and the times the bookies got to know the outcome. In theory, says Poundstone:
“A customer who learned the winner before the bookmakers did could place bets on a horse that had already won.”
Of course, it worked the other way too: a bookmaker who knew the result before others would be quite happy to accept bets on a horse that he knew had lost! A man named John Payne spotted this opportunity and started a wire service to speed up the communication of race results to anyone who’d pay for it:
“Payne stationed an employee at the local racetrack. The instant a horse crossed the finish line, the employee used a hand mirror to flash the winner, in code, to another employee in a nearby tall building. This employee telegraphed the results.”

In the present day of live coverage, smartphones and the Internet, such opportunities are few. You certainly wouldn’t expect to find such opportunities in the stock market, a field where a gazillion dollars are at stake.

In his book Dark Pools on high-frequency (stock) trading with its dedicated exchanges, a place where algorithms make the trades (not humans), Scott Patterson says that the advantage of even a cent matters. Because of the millions of trades the algorithm makes each day, that advantage of even a cent adds up during the day to big amounts.

It’s very hard for modern day stock market participants to get information earlier than others. But there is a time difference between the placement of orders: if you live right next to the exchange, your order has to travel lesser distance than someone who lives a city away. Hard as it may be to believe, people pay millions to be placed closer to the servers, just for that millisecond advantage!

Patterson cites an example. Chicago and New York are connected by super-fast data lines. But not necessarily ones that go by the shortest path. So a company called Spread Networks spent $300 million via the shortest path between the two cities. Guess how much time it saved? 3 milliseconds (three one thousandths of a second) over the round trip!

The craziness of this aside, at least we know have a numerical value for that old saying, “Time is money”. If a saving of 3 milliseconds is worth $300 million, that means 1 second is worth… (drumbeats) $100 billion.

Comments

  1. Ramiah KumarJune 4, 2017 at 9:25 AM

    I liked the last bit: "If a saving of 3 milliseconds is worth $300 million, that means 1 second is worth… (drumbeats) $100 billion". The mention of "the craziness of this aside" made me ask this question: is that all that crazy?

    I generally stand for science in two ways: ONE the spirit of knowing the truth exactly as it is. These days 'knowing' deep secrets of nature comes at - now note we are back to your finish phrase :-) - multiples of $100 billion. TWO the enthusiasm to push technology frontier, where I define technology is the complementary aspect to "knowing", namely applying science principles with great intelligence and subtlety. In doing that, technology is science's own other face. See, science is like the Batman's movie villain: Mister 'Two-face'!

    Million or billion or even trillion - we can't shy away from spending on our passion and pastime-contributor: science and technology. As much as we take it in the stride the salaries of CEOs we can do it. See a CEO salary can be whooping 16 crore rupees a year (in India, where the low coolie survives on barely fifty thousand rupees or less a year), even the statistics that Bill Gates was earning something like $100 or so every minute hardly made the eyebrows rise even in 1990!

    I feel convinced that neither intense searches and applications of science are crazy. What is really crazy is money! What is money but human mind's arbitrary and manipulative value tags! Hope this quote attains fame like Napoleon's view of history - my quote for the nonsense of it of course! :-)

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