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Today, a major company gets itself listed on stock exchanges so that people can buy a portion of the company while it can raise money. While the distances and time lags involved aren't much of a concern in the small-ish blue marble we live on, it does create a problem for stuff like interplanetary stock trade. Average time lag between Mars (the red marble) and Earth (the blue marble) is between ~4 minutes and ~22 minutes, depending upon the relative position of the planets in their orbits at the time. Any news on Earth reaches Mars 4 to 22 minutes later; any news from Mars takes the same time to reach Earth, which frankly is scary in stock trading.

How do I design a resilient system which is not affected by time constraints between planets?

This question is set in the real physics world. Relativity still holds, and, as of current (story) timeline, nothing ever discovered travels faster than light.

SRM
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Suhrid Mulay
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    Why do you want to have an interplanetary stock exchange? I ask because we don't even have inter-country stock exchanges right now. Each one is hosted within a country. – Cort Ammon Feb 06 '17 at 15:19
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    if anything it might help stabilize the stock exchange by creating a buffer against micro-second transactions. – John Feb 06 '17 at 15:36
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    You have a major factual error in the question... the idea that lag on Earth doesn't significantly affect the stock market. It was a major news story a couple years ago. You need to read "Flash Boys"... it's a book, NON FICTION, that documents the fallout of problems (still affecting us today) that microsecond lags create in our markets. It is a HUGE impact for many types of trading even here on Earth. – SRM Feb 06 '17 at 16:54
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    It's probably worth noting that the well-known economist Paul Krugman wrote an extremely useful and interesting paper on this very topic. Read it.. – Periata Breatta Feb 06 '17 at 18:24
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    You can't. Prices will diverge over time. But not by much. High frequency trading firms will simply build satellites to sit in orbits between Earth and Mars, watch for price discrepancies, and make a small profit by bringing those prices back into alignment. – Kaz Feb 06 '17 at 18:46
  • For one relatively well thought out alternative, see Neptune's Brood by Charles Stross. Its a bit of a slog, and the important definitions are not fully explained until a good ways in.. but part of the plot is idea is that alternative financial instruments would be needed for trading in a relativistic world. – Robert Feb 06 '17 at 20:45
  • So no quantum entanglement exists in this world? – Joshua Drake Feb 07 '17 at 15:45
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    The same way they work today except they are less in sync (by minutes rather then by ms). I'm quite sure high frequency trading wasn't a thing through most of 20 c. and yet the international stock trades somehow happened - not mentioned when stocks were shipped by ship between LSE and ASE. – Maja Piechotka Feb 07 '17 at 19:21

6 Answers6

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They don't work.

You should ask a simpler question first. Why, when everything is conducted electronically, do all the stock brokers still accumulate around the exchanges?

The answer as you have already indicated in your question is that latency is scary for traders. They spend a fortune reducing it by 10microseconds, with a latency of 20+mins you might as well not bother.

If you want to trade on the London Stock Exchange, you have to be in London. If you want to trade on the Martian Stock Exchange you have to be on Mars, the closer the better.

As long as you abide by the rules of the exchange there are no restrictions on which exchange you list your company on. If you want to list your Martian company on the LSE, or trade your Martian futures on the NYSE then you can. Companies list based on where they think they'll get the best price, geography is not important (though politics can be).

For major share trades it doesn't matter that much where you are, they have long negotiations on price, but for small trades catching fluctuations in the market, there's a distinct and insurmountable advantage to being closer to the exchange.

Community
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Separatrix
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  • Could companies that want to be more accessible/competitive possibly separate their stocks and sell on earth and mars? Do companies do that already? I don't know how the system works so I'm just throwing suggestions. –  Feb 06 '17 at 15:09
  • @Masterzagh, if you want to list your company on multiple exchanges you can, you just have to abide by the rules of, and pay the fees for, all of them. Apparently it's fine, just really unusual. – Separatrix Feb 06 '17 at 15:22
  • See also High-frequency trading. https://en.wikipedia.org/wiki/High-frequency_trading – CaM Feb 06 '17 at 16:51
  • You CAN exchange at a distance, either through local agents or electronic means. But those with lower latency, faster transactions are at a distinct advantage. They days of mailing your stock certificate to an agent somewhere for them to sell are long gone. – CaM Feb 06 '17 at 16:53
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    They will work. The price-differences between Earth and Mars will just be an order of magnitude higher than between London and Australia. Probably on the order of 1% as opposed to 0.001%. – Kaz Feb 06 '17 at 18:49
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    This answer only really applies to high frequency or day traders. As long as your latency is an order of magnitude lower than the rate at which you want to trade then you're pretty much fine. Long term traders (dealing in currencies or housing, for example) can execute trades that are measured in years with no real issues. So traders dealing with intra/interstellar shipping companies whose success or failure might rely on month or year long missions will be fine (if they play the market right). – Joe Bloggs Feb 06 '17 at 20:14
  • @JoeBloggs, yes, but not enough people think like that. They think faster is better. – Separatrix Feb 06 '17 at 20:56
  • This may be true of how our system currently works, but that is far from a proof that there is no way to change the system to accommodate trading when there is a significant delay. – Shufflepants Feb 06 '17 at 21:22
  • @Shufflepants, there is an argument to be made there, and if you can make it and find a realistic way to run the system without there being an advantage to having a shorter line of communication and the ability to respond faster, I'll support you all the way. – Separatrix Feb 06 '17 at 21:32
  • @Separatrix csiz seems to have proposed such a plan with an answer that I've upvoted :) – Shufflepants Feb 06 '17 at 21:58
  • @Shufflepants, sealed bid auctions are a fascinating system to observe, but they're inaccessible to the average person as you have to be an expert in actual values to take part. It would also have the effect of paralysing the system as each investor needs to keep enough funds to potentially win all auctions entered on each round rather than knowing the funds they'd have for the next purchase. I don't think you'd be able to convince the markets to accept what is a very rarely used mechanic. – Separatrix Feb 06 '17 at 22:19
  • Read Flash boys by Michael Lewis and you will be convinced that this is the correct answer. –  Feb 07 '17 at 10:27
  • @JanDoggen Read "Flash Boys: Not So Fast" and your convictions will be shredded. – deworde Feb 07 '17 at 11:29
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Stock exchanges existed since the XVII century - one of the earliest actually called stock exchanges being Amsterdam, but other de facto institutions were flourishing since the time of the Medicis (which actually owned one).

Typical lags at that time could exceed 108 milliseconds, and it wasn't the case that "local" operators only could hope to profit. Indeed, the Medicis routinely had the equivalent of stock exchange operations with Siena and Rome.

Of course, some operations would require closer decision loops - as they do today. But most would be unaffected. Automated trading would undoubtedly be performed by local agents - exactly as it is done today.

As another example, in the 1800s the London Stock Exchange market was influenced by Chinese tea trade, and merchants in Hong Kong played the London market - of course exploiting their closer and fresher knowledge of China trade.

LSerni
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  • This is entirely true. However if you wrote a letter to me, your broker, saying you wanted to buy 10,000 shares in Martian Mining Co. and I wrote a letter back with a price and saying that I was awaiting your instruction. That price would have a considerable markup against market price to offset the risk to me of the price rising in the time it takes those letters to go back and forth. Of course if the price drops then I'll make a considerable profit, but from your point of view it's not a happy system as you're not getting a good price either buying or selling relative to someone on the spot. – Separatrix Feb 07 '17 at 09:25
  • @Separatrix even today for the retail market you have a open market orders, limit orders... When you buy shares online the confirmation dialog shows much slower then movement of prices so it is preexisting problem. – Maja Piechotka Feb 07 '17 at 19:17
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You could switch from continuous trading to a series of discrete auctions every x minutes. The key is that the order book of the current auction shouldn't be publicly available, only that of already completed auctions; so everyone's on a fair playing field.

Basically have the trading engine accumulate orders for 1 hour then execute them all at the end and publish the result. This way both traders on Mars and Earth have access to the same order book information during any one auction period and plenty of time for a round trip (though sending messages through the Sun might be a bit challenging).

On top of this you'd want a requirement for publishing company news. The exchange would need to enforce that all company filings, product releases, analyst recommendations, etc. be made public at the beginning of each auction (or outside trading hours*). This would be a bit difficult to enforce in case of outside information that influences the company like regulation changes, or death of CEO... It also means that the company has to exclusively trade on this exchange, as the order book of any other exchange would be quite informative.

*Outside trading hours is going to also be hard to define since Mars and Earth days are not in sync, perhaps you'd want all day trading.

As Separatrix's said companies will invest where they get the best deal. Having a wider audience might help here. But perhaps the interplanetary exchange is only relevant to companies that are split nearly half-half between Earth and Mars.

csiz
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  • "sending messages through the Sun might be a bit challenging" That's when you direct your world's engineers to How would an advanced civilization have constant communication between planets? – user Feb 06 '17 at 21:20
  • Sealed bid auctions are a nightmare for non-expert users, along with other flaws in this system but we'll skip that in favour of just saying that the system still benefits the local player over the remote player. 22min delay on finding out what the auction is, then a requirement to get the bid in 22mins before close gives 16mins to judge the value of the company and put in a bid, compared to the full hour to consider the bid for a local player. Also, how were you planning to resolve equal top bids? – Separatrix Feb 07 '17 at 08:15
  • @Separatrix Proportionate split (up to rounding) for equal top bids, based on the bid amount. Alas, I've got to admit the more I think about it the more problems I find... the amount of trouble it would take to publish info at set times is daunting. You're right, there's no good way to remove the proximity advantage, in which case overly complicating the exchange isn't helpful. I guess martians will just have to settle for long term trades + remote algos. – csiz Feb 07 '17 at 12:29
  • I was expecting someone to suggest a way of slowing the system to the speed of the slowest player, I think there's still potential there, but sealed bid auctions are awful. Imagine going round the supermarket, getting to the checkout and being asked how much you think you should pay, knowing that if you don't get it right someone else will get your shopping and you have to start again, but you're on a budget and really don't want to overpay. – Separatrix Feb 07 '17 at 12:42
  • @Separatrix true, but also true for continuous trading. If you fire an order that takes 40min to round trip you're still going to get a non-optimal price, but in that case others closer by will have a much better picture than you. – csiz Feb 07 '17 at 14:38
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You will trade only futures

Future contracts are traded even today. When trading from Earth to Mars, you would trade only futures.

Martian Stock Exchange would trade other financial instruments, but I assume Earth - Martian stock exchange would be heavily based on futures or long term contracts

Pavel Janicek
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    Whilst the terms of a futures contract may not change by the micro-second, the price certainly does. Futures contracts are just as prone to latency problems as any other instrument traded on an exchange. – Kaz Feb 06 '17 at 17:14
  • Agreed. Still I think interplanetary trade would work. You could even create futures product based on the latency between planets... – Pavel Janicek Feb 06 '17 at 18:00
  • @PavelJanicek: One springs from the medium of transport: Goods or transport capacity currently in transit. I will trade you the goods that are currently on the way to Mars, and in exchange you can have some space on a different ship that hasn't yet arrived at Earth. Price fluctuates based on demand, yet individual transactions can take hours to complete and return on investment is seen on year long timescales. – Joe Bloggs Feb 06 '17 at 21:16
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First, the link above is to a paper on interstellar trade - Frankel in 1975 is referenced in that paper and I found it for you - hopefully helpful!

Trade With Other Planets (PDF, 1975)

Without having read the paper, it seems to me that unless faster than light (FTL) communications have been invented in your world there would be time lag significant enough to obtain the types of relationships typical to say, London based markets around the time trans-Atlantic communication became common - studying this time period and the issues caused by the different time frames will be informative.

I do realize that this is not the question you asked, exactly, but more importantly perhaps would be the effect it would have on the currency exchanges - currency markets are highly lucrative and rely on rapid and orderly fulfillment. The effects, once again, could be reviewed in historical markets, but the fact that each isolated market would have its own instantaneous type transactions would create a dynamic exchange, for sure.

Brythan
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case
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  • In real-world currency exchanges of the relevant time period, wouldn't Bretton Woods et al be relevant as factors? – user Feb 06 '17 at 21:21
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It is possible by ASFAS

The Automatic Stock Fluctuation Analysis System (best among the several in market) based on machine learning and artificial intelligence will keep track of the stock favorable ratio and notify the user preset buy/sell authenticating software; which will buy or sell for the user.
The server of the analysis system is based in the planet where the stock is. The user need to make sure the the preset fund availability for the twice the time lag and profit or loss will mostly depend on this detail.

Sathyam
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