Physicist warns of problems with speeding up financial markets

Author, physicist and former editor, Mark Buchanan outlines technical issues with the global financial trading markets in a comment piece he has written for the journal Nature, where he suggests that more thought should be put into how the system evolves in the future because problems with it could cause very serious worldwide economic troubles.

For most people, the global financial markets are a murky business, stocks and other commodities are bought and sold, by individuals, companies and most importantly traders every second that the markets are open. As technology has improved, the ability to buy and sell on any of the worlds' markets (NYSE, Euronext, etc.) has become easy and commonplace. Technology has also changed the way trades are made, with big financial corporations relying on computers running sophisticated software to do the buying and selling for them—it all happens in milliseconds now.

Over the past several years, it has become apparent that some corporations have found that the faster they can receive information from a market, process it and then send back a buy or sell order, the more of an edge they will have over competitors. This has led to a race of sorts, to see who can come up with the fastest system. In his article, Buchanan highlights many of the ways that businesses with deep pockets are speeding up their communications systems, such as installing laser systems on rooftops, and then asks if the move towards seeking the ultimate limit, the speed of light, is good for the financial markets, or the rest of the world's economies.

We all know about the dangers of automatic buying and selling by computers, "flash crashes" can cause massive hikes or drops in prices in milliseconds. Buchanan suggests speeding up communications ever more (such as with the new fiber cable currently being installed between New York and London) will likely result in more such crashes or perhaps cause something truly catastrophic in global markets at some point which could set off an economic collapse. He suggests that rather than take the wait and see approach, it would be better to create teams of computer scientists, economists, mathematicians, and perhaps others, to study the virtual ecosystems that are being built to better understand what is really happening, and perhaps, to build in safeguards to keep runaway systems from destroying the global economy.