We're close to near-speed-of-light financial trading - and it could cause some major problems

Bolt out of the blue, Peter Enright, Coolum Beach, Queensland. highly commended submission of the 2014 Australian Museum New Scientist Eureka Prize for Science Photography.

Near-speed-of-light communications are set to transform the financial markets as laser links between centres come online.

However, there are major risks, says science writer and physicist Mark Buchanan in a comment article in the journal Nature.

High-frequency trading is expanding but is it a boon or a calamity in the making, causing price glitches and undermining markets?

Mid this year, a fibre optic cable will link New York and London, minimising trading times between the financial centres and opening high-frequency trading on a global scale.

However, sudden crashes could become more common and unlucky firms could lose hundreds of millions of dollars in seconds. Meanwhile, some companies say trading fairness is eroded by uneven access to extreme speed.

Buchanan argues that avoiding the risks of high-frequency trading will require intensive research into how markets work and how countermeasures such as trading speed limits can be used to avoid disasters.

He calls for computer scientists, mathematicians and economists to work together to understand what drives flash crashes and how changes in market structures might avoid them.

The article is part of a Nature special issue tied to the 2015 International Year of Light and Light-based Technologies designated by the United Nations.

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