The Tortoise And The Hare Go To Wall Street

“If you want to beat the S&P 500, start thinking of the index as a filter and not a benchmark. It’s the starting line; not the finish line.” Andrew D. Ellis, Founder, ThinkingLonger, LLC

Our friends over at the Wall Street Journal are laying bare the next step in the march of the High Frequency Traders, those behemoths who use microwaves, lasers and advanced fiber optic cables to execute trades faster than a human being can even conceive of them. Once upon a time, it was enough to be physically close to the exchange, so the distance a signal would have to travel through a cable was as short as possible, thereby reducing the time for transmission. But what about trades between distant points, like New York to London? Currently, fiber optic cables transmit orders between financial centers (i.e., New York to London) at 2/3’s of the speed of light. Isn’t that fast enough? Maybe not.

Our human friends over at Robinhood and r/WallStreetBets have been able to get the better of these trading monsters from time to time. Even in the absence of provable coordinated action, pursuing a common objective consistently over time has allowed them to level the playing field against the HFTs. Let’s talk about GameStop and look a little closer.

HFTs can bring huge amounts of capital to a trade, but their standard operating procedure is to…