Millisecond Transactions, the Race to the Trading Bottom, & Wall Street 2.0

Am sitting in a discussion between Peter Bloom, ex- of Goldman and now of General Atlantic, and Bill Janeway ex- of Warburg Pincus. While they’re fine folks, it is remarkable to me how many people fixate on looking at the capital markets through the prism of trading velocity. Classic sell-side blinkers: When your only tool is trading, every problem looks like one that will be solved by trading faster or cheaper.

Wrong. While faster and cheaper is nice, it’s a race to the bottom for traders, investors, and sell-side and buy-side alike. If your only edge comes from being able to execute faster, you are living on borrowed alpha, because trading time & cost are going to zero — except, of course, when it matters most, like when markets are in free-fall and correlations are going to zero.

So, what should we be talking about? We should be talking about the intellectual bankruptcy and sterility of traditional sell- and buy-side data, from IBES on outward, and about how the richest vein of tradable data is online and unexploited, from real estate services to Ebay trading data.

Complete flyer here, but I was doing some work recently where I tried to compare the amount of unstructured data available freely via the web, with the amount of data flowing through “official” financial data channels, like Thomson, etc. I could be wrong by an integer multiple one way or the other, but we’re likely seeing about 10tb of official financial data every day over official channels, and something on the order of 100-500tb of non-official data, from weather, to news, to Ebay data, to Craigslist listings, to referrer traffic, etc.

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Comments

  1. I keep wondering when someone is going to build a trading tool of some kind based on Google search terms. I’m only half joking.

  2. Mathew — There are lots out there, so wonder no more.

  3. If you’re only edge comes from being able to execute faster, you are living on borrowed alpha, because trading time & cost are going to zero — except, of course, when it matters most, like when markets are in free-fall and correlations are going to zero.
    Paul, I think you have a slight typo. I think you meant correlations go to one–that is, all markets for all things in all locations plummet.

  4. Umm, “referrer traffic” is not comparable to “insider buying and selling”. I doubt available referrer traffic is tradable.
    Some Ebay data might be minable for various purposes, but I’d bet they know that, and would price access to it accordingly.
    ISP already sell aggregate data. If someone can figure out how to make it tradable, it’s there for the taking.

  5. Andi says:

    Better data faster! Real time access to general search terms and stock symbols with the processing power to crunch them all on the fly.
    That would be the ultimate data mine. And guess what? It exists…