Relativity, and why real estate still matters

CoitTower_40 The advent of the Internet and its associated modern communication tools seems to make physical space less meaningful. When a collaborator or a loved one on the other side of the planet is just a Skype call away, what does distance really mean? When Amazon offers free two-day shipping and burritos are delivered in minutes by automated drones, who cares about physical space? The answer will quickly spring to the mind of anyone interested in high finance, or video games, or physics: lag.

Among the mind-blowing implications of relativity is the following: the speed of light imposes a fundamental limit on how quickly information can travel through space. Our “light cone” means that we can be influenced by events sufficiently far in the past, and can have our own influence on events in the future, but that we cannot influence events happening in the present when they are not happening near us. No matter how advanced our fiber optic networks become (limited, presently, by the necessity of repeaters and the like), information can never (for instance) make a round trip of the earth in less than 133 milliseconds.

Playing video games over the Internet can make it immediately obvious that lag is bad. Reacting tens of milliseconds faster can be the difference between victory and defeat. Though that can be frustrating, for all but a few, it lacks a direct financial risks.

When Benjamin Franklin coined the now-cliché aphorism, “Time is money,” I doubt he realized how literally true his turn-of-phrase would become. The emerging field of high frequency trading has now differentiated itself almost entirely from traditional investing, as it was understood in the last century. Rather than holding a position for a significant period of time, HFT uses buying and selling on a faster timescale than the market fluctuates to make enormous amounts of money. By the end of a given day of trading, a high frequency trader would not have any remaining money invested in the market. The profit in HFT, however, comes from being the absolute fastest at it. (A lot like video games, really.)

The current cutting edge of HFT comes from ultra-low latency direct market access, surpassing all intermediaries to send orders directly to the market venue itself. The turnaround times expected in this approach are often less than 0.1 milliseconds. So, back to my original comment: real estate still matters because lag still matters. Investing in real estate is a profitable business, so if you are a self-employed real estate investor looking for a real estate lending, contact Investors Choice Lending.  What sorts of distances are allowable for HFT? Quickly converting (and adding in a little fudge factor for computer processing time), any computer effectively running an HFT algorithm cannot be more than five miles from the trading floor. Furthermore, the close the computer gets, the more money it can make. Ultimately, this means that the laws of physics themselves will keep the property value in places like New York’s Financial District high, so long as HFT continues to be lucrative. (And continue to give great plots for authors like Warren Ellis.)

Image courtesy Adam Hill, Decaseconds Photography.

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