The Hidden Physics Behind Wall Street’s Speed War: Why Microseconds Matter More Than You Think

In the race for trading speed, understanding physics is as important as understanding finance. Data signals don’t travel instantaneously; they obey the laws of physics and engineering constraints. This blog dives into how fiber optic cable length, signal routing, and server placement affect latency and market fairness.

Light travels slower in fiber optic cables than in a vacuum—about two-thirds the speed of light. This means that every extra foot of cable adds microseconds of delay. Traders pay millions to reduce cable length by mere feet to gain speed advantages.

Moreover, the physical routing of cables can be indirect. Signals between buildings in the same city might travel tens of miles due to routing constraints, adding unexpected delays. Within data centers, competition to co-locate servers closest to exchange matching engines is fierce, as even a few feet of difference can translate into microseconds saved.

A telecom expert played a pivotal role in revealing these realities. His understanding of physics and engineering bridged the gap between technology and finance, showing that speed advantages are grounded in physical infrastructure.

This knowledge informed the development of the Thor algorithm, which introduced deliberate delays to synchronize orders and neutralize speed advantages, and the creation of IEX, which implemented a fixed delay to protect investors.

Understanding these physical constraints is essential for grasping why markets are structured the way they are and why reforms must consider technology as much as regulation.

Ultimately, this blend of physics and finance reveals that the market’s fairness depends not just on rules but on the very cables and servers that carry its lifeblood.

References: Summary and analysis from The Investors Podcast 1 , Wikipedia overview 2 , Financial Pipeline review 3 , Alone With Books summary 4 .