Trading at the Speed of Light: How Ultrafast Algorithms Are Transforming Financial Markets

by Donald MacKenzie

A remarkable look at how the growth, technology, and politics of high-frequency trading have altered global financial markets

In today’s financial markets, trading floors on which brokers buy and sell shares face-to-face have increasingly been replaced by lightning-fast electronic systems that use algorithms to execute astounding volumes of transactions. Trading at the Speed of Light tells the story of this epic transformation. Donald MacKenzie shows how in the 1990s, in what were then the disreputable margins of the US financial system, a new approach to trading―automated high-frequency trading or HFT―began and then spread throughout the world. HFT has brought new efficiency to global trading, but has also created an unrelenting race for speed, leading to a systematic, subterranean battle among HFT algorithms.

In HFT, time is measured in nanoseconds (billionths of a second), and in a nanosecond the fastest possible signal―light in a vacuum―can travel only thirty centimeters, or roughly a foot. That makes HFT exquisitely sensitive to the length and transmission capacity of the cables connecting computer servers to the exchanges’ systems and to the location of the microwave towers that carry signals between computer datacenters. Drawing from more than 300 interviews with high-frequency traders, the people who supply them with technological and communication capabilities, exchange staff, regulators, and many others, MacKenzie reveals the extraordinary efforts expended to speed up every aspect of trading. He looks at how in some markets big banks have fought off the challenge from HFT firms, and how exchanges sometimes engineer technical systems to favor certain types of algorithms over others.

Focusing on the material, political, and economic characteristics of high-frequency trading, Trading at the Speed of Light offers a unique glimpse into its influence on global finance and where it could lead us in the future.

Genres: Finance, Nonfiction, Economics, Business, Technology

304 pages, Hardcover

Published May 25, 2021

About the author

Donald MacKenzie was born in Ontario, Canada, and educated in England, Canada and Switzerland. For twenty-five years MacKenzie lived by crime in many countries. 'I went to jail,' he wrote, 'if not with depressing regularity, too often for my liking.' His last sentences were five years in the United States and three years in England, running consecutively. He began writing and selling stories when in American jail. 'I try to do exactly as I like as often as possible and I don't think I'm either psychopathic, a wayward boy, a problem of our time, a charming rogue. Or ever was.' He had a wife, Estrela, and a daughter, and they divided their time between England, Portugal, Spain and Austria.

Reviews

[Andrew Tollemache · Rating 4 out of 5]

Having spent almost 25 years in the electronic trading business, I got a severe headache from rolling my eyes so hard at the thought of a sociologist writing an analysis of high frequency trading (HFT), its history and different iterations across market segments. Well that was a mistake because this is an illuminating book that gets so much of the history of how HFT arose correct and for a sociologist also goes into great and accurate detail about the underlying technology and regulatory dynamics behind the current market microstructure.
A key insight of the author is how HFT technology is unique in that it exists at the limits of our Newtonian world and not an Einsteinian one. Whereas in some tech fields the physical limitations and factors of the world are seen as random and abstracted away. HFT technology is a constant struggle to deal with a physical world whether it be trying to make the absolute quickest and 'straightest' fiber optic connection between the data centers in Chicago and NYC (New Jersey really) or dealing with the fight for the highest line of sight microwave tower positions between Chicago & the NYC/NJ exchanges all the while having to worry if rain or fog will delay the wireless transmission
My experience is mostly in the equity trading business so to learn how electronic trading operates so differently in other spaces like FX or Treasuries was eyue opening. Its hard to discern whether MacKenzie prefers the more fragmented and tech intensive world of equity shares trading or the more guard-rail and incumbent protecting structure of the FX and bond worlds. It read to me like a form of cartelized price fixing but MacKenzie skips by that and gives the slight impression he approves.

[Matthias Noch · Rating 3 out of 5]

It gives a solid overview of the history and legal background of HFT but is a bit weak on the technology side. So it is an interesting addition but not a fundamental must-read.

[Cold · Rating 5 out of 5]

Amazing book.

MacKenzie taps into two interesting concepts, the first is pretty obviously sociological, about the politics of market structure and how the newcomers had to delicately unseat the incumbents. Across FX, futures, equities, bonds etc this played out differently. FX traders could identify counter-parties and so HFT algos that made too much money could be punished by banks, and so the banks still dominate FX. Trading of equity/futures was much more amenable to HFT.

The second concept was materiality. These traders are so fast they're literally up against the limits of Einstein's physics, not Newton's. This meant that various traders battled to lay a fiber connection along the geodesic from Chicago to New Jersey, and then someone built a microwave link that could out pace the fibre, but not on rainy days. The traders didn't care because its better to be first only on sunny days than second every day irrespective of the weather. Another is the placement of radio antennae and rules like them being placed 100m from the exchange. There was also an exchange that included an intentional coil in the fiber link to add 350ms overhead to all communications.

You can tell how deep into the HFT world he became. None of the debates are obvious to an outsider, and yet he picks up on them and explains why they matter. Smuggling niche community insights into more generic knowledge.

I like and appreciate his methodology too. While he conducted 300 interviews, he made it clear that most of the value came at the end when he knew enough to have good conversations. Similarly, I like how he tries to independently confirm statements from participants. Both ring true of my own research.

[Szymon Woźniak · Rating 5 out of 5]

Really fantastic book describing HFT in a lot of detail but in an approachable manner using simple language. Was really impressed by the authors language and way of describing not trivial concept from a novice perspective. Would recommend and would definitely check out author’s other books. The book even covers some basics of HFT strategies, which is generally hard to come by in similar literature.

[Don Heiman · Rating 4 out of 5]

Princeton University Press in 2021 published Edinburg University of Scotland Professor Donald Mackenzie’s book “Trading at the Speed of Light: How Ultrafast Algorithms Are Transforming Financial Markets.” The book describes how computer code, telecommunications networks, and sophisticated data centers are able to process international financial market transactions in 3-5 nanosecond (speed of light) processing times. These high frequency trading (HFT) systems have a stunning impact on clearing house order book financial transactions. Mackenzie’s research is based on professional code-writer personal interviews and excellent secondary publication references. The book’s footnotes are very well done. However, I would like a more detailed topic index. (P)

[André Morais · Rating 4 out of 5]

Mackenzie’s “Trading at the speed of light” is an insightful account of the evolution of trading from manual to electronic, and how this activity evolved until the dawn on high-frequency trading (HFT).
Having already read Michael Lewis’s ‘Flashboys’, and seen Nguyen’s ‘The Hummingbird Project’, I wasn’t a total stranger to the world, terms and complexity of HFT. However, since Mackenzie really takes a deep dive on the subject, I must confess that I couldn’t grasp the full extent of the book and its theses.
Nevertheless, I really enjoyed it and found it quite educational, and, at times, entertaining. One particular point of interest to me was the chapter dedicated to the intricacies of regulatory affairs regarding trading, and how the bureaucratic infighting between the FCTC and SEC shaped the different frameworks governing futures and stocks trading.
On the other hand, the long description of how far HFT firms go to build a cable connection between data center and the Chicago Mercantile Exchange as straight as possible is a bit repetitive, in light of the previous literature.
Also, the book highlights a lot how ‘futures lead’, but seems to fail to provide a complete explanation, and seems to plainly and simply refer that a linear regression is used to do so.

[Lily Poppen · Rating 5 out of 5]

I am super incompetent with economics but coming into this with truly no knowledge of financial markets, it was not only accessible but compelling. MacKenzie is vying for a new direction to analyse and understand HFTs outside of objective economics and the fully abstract and human-absent algorithmic considerations. He orients his argument around historical precedent and developments as well as humanities-focused frameworks (the ethnographic approach is effective) which is maybe why I can grasp it more? This was really off-brand for me to read, but honestly, was pretty shocked how much I enjoyed it and five-stars to MacKenzie for writing in a very clear organised, and almost narrative-like way that encourages further research and reading (his footnotes are really thorough).

[Benji · Rating 4 out of 5]

'Mc Kay brothers was able to build its London-Frankfurt link using mostly frequencies below 10 GHz, and so, reports Tyč, rain has little effect and market-making algorithms in Europe therefore do not need to widen spreads when it rains heavily, as their US counterparts may need to.'

The 2010 flash crash might be a fascinating example of individually prudent, rule-bound behavior (checking data integrity is prudent) generating potentially damaging, unruly, collective turmoil.

An economic sociologist delighted to find trading arrangements in the midst of today's ultrafast electronic markets in which participants deliberately avoid making too much profit.

[Niclas Küpper · Rating 5 out of 5]

A sober analysis of high frequency trading. The book focuses on what it calls the "material economy" and "political economy" — how physical and social realities impact economic outcomes.

The author conducted 300+ interviews over 10 years. It is clear that this time was well spent as they not only grasp intricate details of the industry but manage to pinpoint what is truly important and why.

What this book lacks in personal anecdotes(by the nature of anonymous interviews) it more than makes up for in political and material drama.

[Gijs Limonard · Rating 4 out of 5]

3,5 stars; interesting read, I keep getting surprised about how far and wide people will go to make a profit in the world of finance; there is absolutely no morality involved whatsoever; an absolute lack of sense of what it means to actually contribute to society in a meaningful way and try and make things better for all; as such this was quite interesting; the totally mechanized exploitation of price action on the stock exchange using ever increasingly sophisticated infrastructure to maximize profits.

[Luis Felipe · Rating 5 out of 5]

The book looks at HFT, from a sociological standpoint which is novel on financial literature. What makes the book interesting is the line the author takes to explain the economics and utility functions of the various actors in this market. The focus is mainly US centric and on stocks and futures, but it makes some interesting annotations on other asset classes like FX and very lightly on crypto.
As someone that works for an HFT, the book was interesting and provided some extra points to consider around market structure and inter connectivity of all financial markets.

[Geoffrey Grosenbach · Rating 5 out of 5]

Well written with technical details that are at a level slightly more advanced than most popular science/economics books (packets, refraction of light in fiber optic cable, stock index futures, etc). The author does a great job covering historical context, evolution of profit-making strategies, and even ethics. Highly recommended.

[Piet-Hein Daverveldt · Rating 4 out of 5]

Fascinating description how politics/regulation, hardware and economic drivers have directed the evolution of high frequency trading (HFT) in various markets. One wonders however whether all the financial and human capital spent on the speed race in HFT could not deliver greater societal benefits in other domains.

[Ryan Ferro · Rating 3 out of 5]

I found this book to be dry. Note that I majored in economics, passed my Series 7 exam when I became a corporate finance analyst, passed all three CFA exams on my first attempt and completed my MBA... I guess I just don't share the author's passion for the “mundane political economy of finance.” I'm surprised the book is as well reviewed as it is on this site.

[Rishabh Thakkar · Rating 5 out of 5]

Great discussion about how the HFT industry has evolved into its current state due to a combination of politics, science, and economics. Now I have a go-to book to recommend for people with questions about work!

[Michaela Drouillard]

i like this one so far and Nico told me I can ask him any questions I want about it. a genre i'm discovering that i really like this year -> Insanely Lucrative and Innovative Business Run Out Of a Non-Descript Strip Mall Somewhere In America

[Hugh McGuire · Rating 5 out of 5]

A first class description of the many layers that make up HFT.

[Grace · Rating 5 out of 5]

i love a good satire

[Jennifer · Rating 4 out of 5]

Heavily researched and well-executed history of HFT and the factors that have influenced its development.

[J · Rating 5 out of 5]

Amazing account of the history and workings of market making and trading

[Lana Gorlinski · Rating 4 out of 5]

surprisingly interesting and well-written given the subject matter

[Michael Kapustin · Rating 5 out of 5]

Great book. Enjoyed the sociology perspective of trading.

[Scott Turro · Rating 1 out of 5]

Literally the only book I did not like. So boring and that says a lot coming from a quant

[Vadim K · Rating 5 out of 5]

🔥⚡️ Brilliant. A British sociologist dives deep into the subject and really gets it—this is the best book I’ve read on the topic. Fascinating how the grain crisis in the USSR effectively gave a push to the creation of HFT.

Like in Flash Boys, there’s also discussion of how the intertwining of interests in the U.S. Congress and the European Union allows bankers to keep margins artificially high.

I first tried listening to it as an audiobook, but there are so many references and visuals that it’s really a book you need to read.