The Things You Learn When You Meet People Who Work On Wall Street
Our host in Fire Island has a strong math background and works for a bank — so he is "up" on the latest developments in stock trading. He told me about Flash Trading — which is nicely explained in this Wall Street Journal article, tinyurl.com/kw6okf Stock trading, he explained, used to be handled by people: guys who could make really fast calculations buying and selling in the "pit" all day, matching wits, guts, and mental math against other guys. Now many of those functions are handled by computers. And because of that, the speed of the game has changed exponentially — which leads to flash trading. (Today’s New York Times has a related article, see tinyurl.com/lg7l99)
A computer can post an offer to buy or sell for a micro-second, and be noticed by another computer — before any other machine (or certainly human) is aware of that price. That fractional advantage can make a difference in a few pennies on what the seller can make (for reasons that I do not fully understand). Just a few pennies — but if the computer can make a few pennies times hundreds of thousans of shares times thousands of transactions that tiny difference can add up to tens of millions of dollars by year’s end. Markets function at the speed of the fastest supercomputer — because every microsecond of advantage any one brokerage house has over another can yield millions of dollars of profit — so much so that some houses actually pay a premium to physically house their computers right next to the computers that run the markets, so the nanoseconds of travel time it takes for the signals to pass from one machine to another favor that house.
I bring that up here because it seems to me that the shift from the trader to the computer, from human fast to machine fast, is a bit like the shift from book plus author visit, to book plus digital author relationship. The speed of the digital world shifts us from point to point transactions to ongoing interactions. Books are still books — all the more wonderful for being slowly and carefully created (exactly like Slow Food — the artisanal counter to Fast Food). But we as authord need to figure out how to enter the digital jet stream — how to be part of this world of transactional information exchange. Speed can be our friend, if we learn how to use it.