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.
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?
ReplyDeleteI 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! :-)