Transmission of Trading Orders through Communication Line with Relativistic Delay

• Main Author: Peter B. Lerner
• Format: Article
• Language: English
• Published: MDPI AG 2021-02-01
• Series: International Journal of Financial Studies
• Subjects: network dynamics; high-frequency trading; signal processing; relativistic delay; queue theory
• Online Access: https://www.mdpi.com/2227-7072/9/1/12

The notion of “relativistic finance” became ingrained in the public imagination and has been asserted in many mass-media reports. However, despite an observed drive of the most reputable Wall Street firms to establish their servers ever closer to the trading hubs, there is surprisingly little concrete information related to the relativistic delay of the trading orders. There is an underlying assumption that faster electronics are always beneficial to the stability of the network. In this paper, the author proposes a modified M/M/G queue theory to describe the propagation of the trading signal with finite velocity. Based on this theory, we demonstrate that, even if the reaction time of the system is negligible, the propagating signal is distorted by simple acts of trading along the transmission line.