FACTBOX: A modern trader's clock: Micro, nano and picoseconds

Employees work at the Tradeworx office in Red Bank, New Jersey November 17, 2009.

TORONTO (Reuters) - Trading a stock is now far faster than a blink of an eye or the speed of a lightning strike, and in the race to shave time, high-frequency traders are ramping up technology to get closer to the speed of light.

Key to high-frequency trading is latency, industry jargon for delays that occur in transmitting buy and sell orders. Also important is throughput, a measure of how much data can be transferred over a period of time.

Lower latency and better throughput mean faster trading.

However, latency is never constant, said Donal Byrne, chief executive of Dublin-based Corvil, a supplier of latency management systems for high-frequency traders.

Like the weather, it's always changing and variables such as distance, traffic load, bandwidth and processing capacity can slow a trade, Byrne said.

High-frequency trading now revolves around microseconds and even nanoseconds. Picoseconds are on the horizon.

WHAT'S IN A SECOND?

1 millisecond (ms) = one thousandth of a second

1 microsecond (us) = one millionth of a second

1 nanosecond (ns) = one billionth of second

1 picosecond (ps) = one-trillionth of a second

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A fast trader can type and submit perhaps five trades in a minute, said Paul Michaud, a trading and risk management specialist at the software group of International Business Machines Corp in Houston. In those 60 seconds, exchange systems and black boxes will soon be able to transmit 60 million trades, he said.

"Generally people view we're in a race to zero here. I mean literally we're in a race to zero. Speed of light is actually an issue for a lot of our clients," Michaud said.

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"An electrical signal can travel down a wire 200 meters in one microsecond," said Greg Allen, vice president of governance, architecture and planning at TMX Group Inc, parent of the Toronto Stock Exchange.

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"A blink of the eye is about 200 milliseconds," Allen said.

"The fastest exchange or ATS (alternative trading system) would've been in the range of 5 milliseconds," referring to trading venues built up to five years ago. "Now, the best ones claim to be around 500 microseconds -- so half a millisecond."

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"(Lightning) goes about 120 meters in a millisecond. In that same millisecond your order can travel about 200 kilometers," Allen said.

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The speed of light, at 300,000 kilometers per second, remains elusive. "Unfortunately it is not possible to exceed the speed of light as much as Wall Street might like to," said Michaud.

"It takes you about half a second to click a mouse. The new exchanges are being designed to do a million trades in the amount of time it'll take to click a mouse," he said.

(Reporting by Jennifer Kwan in Toronto and Herbert Lash in New York, editing by Claudia Parsons)