A few weeks ago, I read that Wall Street traders had invested $300 million in a new fiber optic line between Chicago and New York City to shave a few milliseconds off the existing route in order to gain a massive advantage for their computer trading algorithms.
This investment, which could have brought real value to hundreds of thousands or even millions of people in the form of better broadband connecting residents and local businesses was instead squandered on a practice that adds no value to markets. In fact, we might argue it actually distorts markets.
But I bring it up here after reading a fascinating development from Anton Troianovski of the Wall Street Journal. Wall Street traders are now building microwave towers to shave milliseconds off the fiber routes.
“Self,” I said, “How can it be that microwave relays are faster than fiber optic lines?” Turns out that these wireless shots can be created in straighter paths, which means the signal has to travel farther in the fiber routes. Once again, it turns out the speed of light can be a limiting factor.
But microwave networks can be faster than their fiber-optic counterparts. Signals shot in a straight line between microwave dishes within sight of each other don’t have to negotiate the mountains, buildings and other obstacles that lengthen the trip by cable. Because of their height, cell towers are prime locations for the dishes.
On the downside, microwave networks are less reliable than cables, because signals can be disrupted by bad weather and other interference. They also can’t carry as much information.
So I figured this was a good weekend story because of the wireless/fiber angle but also because it is a reminder that Wall Street invests narrowly for its benefit. Extracting value from the market by having a 1 millionth of a second advantage over everyone else provides no value for the rest of us. This is not a system that is rationally allocating capital, it is a system that allows vampires to suck the life out of us. And that is a very good reason to find ways of being self-reliant.