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MacKenzie on HFT and bit fucking

Donald MacKenzie, London Review of Books, Be grateful for drizzle, here. Oh, and no context switches for those scoring at home. I like how they do the mm wave trick and then run totally unoptimized code in the colo rack on a Sandy Bridge core. It’s like paying Usain Bolt to be part of your relay race team and having him hand the baton off to Stephen Hawking, because  he’s smart, he’ll figure something out.  Alas Nolo Trading did not make it to MacKenzie’s notes or article, my bad.

The beams are infrared, which means you can’t see them, but lasers are now flashing stock-market data through the skies over New Jersey. If they work well there, they might soon be flashing over London too. Lasers are the latest tool for high-frequency trading: the fast, entirely automated trading of large numbers of shares and other financial instruments.

The shortest and therefore fastest route on the surface of the earth between any two places is called a ‘geodesic’ or great circle. When you talk to high-frequency traders (something I’ve done a lot over the past four years), you quickly learn that the world’s financially most important geodesic – the spinal cord of US capitalism – runs from Aurora, a town in Illinois that’s now essentially an outer suburb of Chicago, to northern New Jersey. It’s now close to impossible, I’m told, to put new microwave dishes along that crowded geodesic: all the space on the towers closest to it is already rented. The dishes can interfere with one another, so you need permission from the Federal Communications Commission to build new towers or install new dishes. As a result, no one is easily going to beat McKay Brothers, which owns the fastest, geodesic-hugging Aurora-New Jersey microwave link.

 …

You can’t do everything using FPGAs: sometimes high-frequency trading requires use of a computer server’s central processing unit. The programmer tried to explain to me the software style that was necessary to ensure speed. ‘There are rules you need to follow to write fast code,’ he told me: ‘Don’t touch the kernel. Don’t touch main memory … Don’t branch.’ (That third commandment means don’t fill your program with ‘if’ statements – ones with the generic form ‘if A then do B else do C’ – because they get in the way of a modern microprocessor’s capacity to do several things in parallel.) But he also warned me that ‘we don’t know ahead of time what those rules are because every piece of code comes with a different rule book … I call them rules, but they’re more guidelines … That’s why it’s hard to teach someone: they either get it or they don’t. Those that get it, awesome.’

I’ve heard the requisite style of programming described as ‘bit fucking’. I’m uncomfortable with the term, but it conveys the need for an intimate understanding of precisely the best, subtlest way to handle the flow of binary digits from the raw data feed, through the computer system and the additional specialised hardware, and then back (in the form of orders) into the network connection to the relevant order gateway. A more polite term for it is ‘close-to-the-metal programming’. Just as talk of globalisation in finance tended to assume that local phenomena such as London rain had become unimportant, so it is all too easy to think that digital financial markets are abstract and virtual. But, like bankers who never look at maps, programmers who think that way will do a poor job in high-frequency trading: they will never ‘get it’. If you’re going to write really fast code, you have to understand the computer you are programming not as an abstract machine, but as a physical device through which electrical signals pass. Only then can you work out the most efficient way of channelling those signals.

If you’re a certain kind of person, there’s pleasure to be had in a lot of this. I don’t mean simply in bit fucking, although pleasure is of course one of the term’s connotations. There’s pleasure in skilled engineering, and in working for a firm with at most a few dozen employees that can outwit the big banks – which may be rich, but are also often bureaucratic and sometimes simply stupid. (Nearly all HFT firms started small, and only a few have grown to be more than medium-sized.) I confess that some of the pleasure rubs off on me. It’s nice to study a domain of economic life that’s so caught up with the physical world: with wind and rain and fog, tunnels and oceans and sharks; and with the geography of such unfashionable places as Aurora, Weehawken and Slough.

Wait, … I’m gonna go ahead and call first on ‘Bit Humpers’ – folks who aspire to bit fucking.

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