- The Cautionary
- Posts
- Learning AI #21
Many times, money isn’t made by being right. It’s made by being first.
What if you had information that could move a company’s stock price up? You learned that an announcement of a huge contract was going to be made later in the day and it would probably drive the price up.
If you know about the pending announcement, others probably do too. The trick is to place your trade first and then enjoy the price spike when others pile into the stock.
Let’s say you are in New York, and a competitor is in Philadelphia, and you both use super fast AI trading systems that place your trades at the same time to a trading desk in Chicago. You both get the stock at the same price, right? Wrong.
Placing the order is only the start of a chain of events, and whichever order gets to the trading desk in Chicago first gets filled first.
Your internet connection matters when it comes to the speed of order execution.
A company once built a direct connection between New York and Chicago to shave 15 milliseconds off a trading order’s travel time. A millisecond is one-thousandth of a second. A human blink takes 300 milliseconds.
The task required boring tunnels through mountains and other ridiculous feats of engineering in order to lay the fiber-optic cable. Did anyone use it once it was done? Trading firms lined up to pay $300,000 per month for access. It was great while lasted, but, like most any technology, it was put into obsolescence by the next cool thing. Starlink.
Starlink satellites orbit Earth much lower than traditional telecom satellites. Travel time for a signal (say, a trading order), os 20X faster on Starlink.
Starlink is part of SpaceX and Starlink’s satellites orbit about 350 miles above Earth. Traditional telecom satellites orbit at 22,000 miles. That difference means Starlink delivers round-trip signal times of around 20 to 40 milliseconds. Legacy satellites are 600 milliseconds or worse.
For most people, that difference is invisible. For financial traders running AI-driven strategies, it's worth millions per year.
High-frequency trading firms make hundreds of AI-driven trades a minute. These traders try to capitalize on tiny movements in a company’s stock price. High-frequency trading firms pay enormous sums for connectivity that shaves milliseconds off execution time. They want to be first into a trade.
Many SpaceX launches place Starlink satellites into low-Earth orbit.
Using Starlink, traders that can instantaneously respond (in like a few milliseconds), are the ones that capitalize on the sudden downdrafts and the subsequent recoveries in AI-driven trading markets.
There is no time to wait for your trading order to travel for half a second like legacy satellite communications offer; you need something like Starlink and its low-Earth orbit that connects your order 20 times faster.
The lesson here is that you may have the greatest AI-trading algorithm (or other AI money-making idea), but if you rely on outside parties for critical functions like transporting your electronic order, your product might not work.
Things I think about
Only 12 humans have ever walked on the Moon, all Americans, between 1969 and 1972.
No Adult Left Behind is picking up some great reviews and averaging 4.6 stars on Amazon. Here are a few:
**********