British regulators have studied the “tax” imposed on ordinary traders by ultrafast traders. The latter use high speed computers and powerful algorithms to
“latency arbitrage,” in which ultrafast traders seek to react to fresh, market-moving information more quickly than others can.
The latency is the ultrafast traders’ ability to act on slightly out-of-date prices that are inaccessible to the bulk of us traders because we don’t have those fancy computers running those algorithms. The “tax” metaphor is the difference between those (very—a matter of microseconds) slightly dated prices and the prices available to us in more real time.
The “tax” amounts to some $5 billion gained globally by the ultrafast compared to the rest of us. That seems like a large number, but put it in perspective.
The value of the aggregated global stock markets was around $86 trillion in 2019. The “tax” from the ultrafast’s computing/time advantage amounts to a bit under 0.006%.
That’s not to say the artificial arbitrage shouldn’t be addressed, but it does suggest that the urgency isn’t great. We have time figure out how to level this tiny bump in the playing field without moving, for purely noneconomic reasons, to restrict some traders to the advantage of others.