Hacker News Reader

Comment by deeths | Hacker News Reader

The middle of the ocean could be a a very high margin location for IaaS hosting.

Due to speed-of-light delays, some of the ideal locations for hosting high-speed trading arbitrages are in the middle of the ocean. Being half way between two exchanges would allow you to notice a small difference in price of some commodity in two different exchanges and buy and sell microseconds before your competitors on the mainland know that there's an arbitrage opportunity. See http://www.physicscentral.com/explore/action/stocktrade.cfm

View on HN

If this actually worked, there would be boats sitting in the middle of the Atlantic and Pacific with computers on them. I have no idea if they are sitting there, but I'm pretty sure if it was an idea that worked, it would be done by now.

That was my first thought, too.

On the other hand there are probably cheaper ways to beat your competitors than crewing a boat, paying for fuel/electricity, havign a datacenter crew on board, dealing with the challenges of getting a high bandwidth signal hundred of miles off-shore, etc. Specifically you could invest in ever-faster custom processing in hardware or a lower latency connection will still make you faster than your competitors. You don't need to be as fast as possible, you only need to be a tiny bit faster than everyone else.

On the other hand, if someone can take advantage of economy of scale (by being a neutral provider to many brokers) and provide an advantage over everyone at a lower cost than the above options, then everyone would need to use it to compete effectively.

From talking with a friend who's a retired stat arb quant, the fundamental idea is sound.

My guess for why people aren't doing it yet is that first, there are still untapped locations on land that are easier to get running (example: the Chicago to NY fiber run), and second getting the data to the ocean point isn't trivial.

I think if you want to look for early signaling of someone doing this, look for where telco folks route new fiber runs. If they take a longer path to go near one of the points in the paper I'd bet they're at least hedging for the possibility of using that fiber run for arbitrage.

Edit: a more mundane explanation may be that the arbitrage is so low margin that the payback time isn't practical vs the initial investment.

I don't understand why it's sound. The order still has to go all the way to the exchange. Why is it better to spend 50 ms to get the market data, 1 ms to do the decision, then 50 ms to send the order (middle of ocean to exchange), when you could spend 100 ms to get the market data, 1 ms to do the decision, then 0 ms to send the order (colocated hosting at exchange)?

Your algorithm is making decisions on data that's 50ms older than the data the other guy in the ocean used, I suppose. I'm not into low-latency trading enough to know whether or not that 50ms-ahead data alone could make you money, but based on how much the trading guys go nuts over it I assume it could.

Because sometimes the order you have to place is on the other side of the ocean where the data came from, costing you an extra 100ms.

Just guessing here, but the geographical advantage probably requires a fiber link, which seems prohibitive in open ocean. Putting your ship in the right place probably doesn't improve your latency if you have to bounce signals off of satellites.

It doesn't help if you need to use satellites, but you cloud use microwave. Microwave is line of sight, which would usually limit you to 40miles, but if you were to have a big blimp tethered to a big barge, then you can increase the line-of-sight distance.

I think it's possible to build a platform, like an oil drilling platform, survivable in the middle of the ocean (against storms and rogue waves) and hook fiber into it by dropping fiber in extremely high-strength conduit (like oil drilling pipe) to the ocean floor and then across the ocean to continents.

I don't think the cost/benefit is acceptable considering more serviceable locations that already have fiber, like Hawaii in the Pacific. Operational costs for a floating platform are much higher, and fixing anything major would take days instead of hours.

What about DDoS attacks (N/A if these are private network links) or real pirate attacks?

It's hard to DDOS private networks that aren't accessible from the internet.

It's a fairly common (and silly) dismissal of any new effort that "if it worked, someone else would already be doing it".

Except I didn't dismiss the idea. I'll restate, "Given the urgency and reward behind efforts around gaining advantages of market trades, I can assure you if it's technically possible, they've done it and perhaps we don't know about it."

Notice I did NOT state the corollary, "I don't see trading boats in the Pacific, so it's not possible to do.". I suppose that could be accidently inferred from my statement, but that was not my intent.

It is theoretically sound: TANSTAAFL

It is theoretically sound if you assume that the present state is equivalent to the long-term equilibrium (e.g., ignore friction.)

Mentioning the speed-of-light delays sort of implies that you'd have a straight shot fiber run to both exchanges (no circuitous routes, at least no more circuitous than other exchange participants - can't be behind the rest of the market, right?).

I'm not sure that this is possible without working directly with someone like Hibernia Atlantic or FLAG to get a fiber splice in the middle of the ocean.... which puts this beyond the reach of the average startup and into Goldman-or-JP-morgan territory, pricewise.

For those who want to play at home - where would you drop your offshore arbitrage platform, given the cable spread on this map: http://submarine-cable-map-2013.telegeography.com/ ?

Reply on news.ycombinator.com