Money Movie: The Hummingbird ProjectMay 09, 2019
The Hummingbird Project (2019)
Eons ago, back in 2017, we posted a blog that examined the effect High Frequency Trading has on ‘ordinary investors.’ In it, we talked about companies whose ‘machines have direct access to stock exchange servers, which gets them an inside look at quotes and trades at ridiculously fast speeds.’
To enable this ‘over 2,000 workers were employed to install over 1,000 km of 1.5-inch cable between Chicago and New York.’ While we think we’re on top of things happening in the blink of an eye, the introduction of this technology altered the evolution of stock market trading.
The challenging factor was that the fibre optic cable had to be run in a straight line. Perfectly straight.
‘Through mountains, rivers, swamps… straight, straight, straight’ so it could transfer ‘stock market quotes in 16 milliseconds, one millisecond faster’ than was previously possible.
The need for that precious one millisecond difference might seem ludicrous to the uninitiated, but the potential reward of ‘five hundred million dollars a year’ certainly made it worth giving the venture a go.
Recently released, ‘The Hummingbird Project’ is a fictionalised version of the construction of the tunnel that houses the cable. We can assume there will be some typical Hollywood-style embellishment sprinkled throughout the story.
At the very least, we’ll experience drama, intrigue and possibly a romantic entanglement. But this film is definitely a handy way to learn about High Frequency Trading.
It also dramatically highlights the lengths people will go to try and make money from the stock market. The desperation and deceit, challenges and creative solutions.
Of course, there’s also the obligatory plot twist - just when they think they have it all figured out, something else comes along to completely destroy, or seriously reduce, the profits made from the initial technological breakthrough.
Michael Lewis also explores the details of High Frequency Trading through his 2014 book ‘Flash Boys’.
You may know Lewis as the best-selling author of ‘Moneyball’ and ‘The Blind Side’, which have both become Academy Award winning movies.
‘Flash Boys’ highlights the story of Brad Katsuyama, a Canadian financial services executive who co-founded the Investors Exchange (IEX) in an attempt to thwart the abuse of High Frequency Trading.
Viewing it as a ‘rigged system’, by 2012, just three short years after the tunnel was built, Katsuyama had already created a way to limit the impact of predatory HFT.
IEX’s answering innovation was to place 61 km coil of optical fibre in front of its trading engine.
Designed to negate certain speed advantages utilised by some high-frequency traders, this 350-microsecond delay added a round-trip delay of 0.0007 seconds.
Deemed an ‘appropriate and beneficial response’ to HFT abuse, this speedy response certainly highlights the impact of ever-evolving technology on the stock market.
The use of algorithms and data to make money from placing vast amounts of orders to earn wafer-thin margins. Through harnessing the power of technology to gain advantages whilst trading, it is possible for HFT firms to gain millisecond advantages over their rivals. Opportunities and returns on HFT have reduced during the past decade and margins have become slimmer.
The stock exchange has some important national and global functions that can be affected by outside influences:
The principle that the most recently presented items or experiences are most likely to be remembered best.
In regard to the evolution of technological impact on trading and the stock exchange, we can take this principle one step further, inferring that what worked today may not continue to work, leaving the future uncertain and unpredictable.
There is always so much going on behind the scenes of the financial world. If you do watch The Hummingbird Project, it is worthwhile to bear in mind that by the time the ‘straight’ cable run had been completed, the technology was already on the way to becoming outdated.
While it may not always involve intrigue and desperation, even as ‘ordinary investors’ it is important to stay aware of the effects of technological changes and advancement on the future of investment and trading.