Insider Brief
- Researchers have proposed using a twist on quantum entanglement, dubbed “quantum telepathy,” to dramatically boost high-frequency trading by enabling near-instantaneous coordination between traders across different stock exchanges.
- The approach could potentially eliminate delays currently limiting trading decisions, offering a significant “edge” in the fast-paced world of financial markets.
- While promising, the deployment of quantum telepathy in trading raises regulatory concerns and requires further theoretical and experimental validation to assess its practical viability.
A team of researchers, reporting their findings in the pre-print server ArXiv, may have found a new use case for quantum: high-frequency trading (HFT). A recent proposal from an independent researcher and a scientist at the University of Chicago suggests that quantum entanglement—referred to by Albert Einstein as “spooky action at a distance”—could be leveraged to create a phenomenon referred to as — not by a lot of scientists, though — “quantum telepathy.”
Just to peel some physicists off the ceiling or interrupt their preparation of an angry LinkedIn comment, here’s a spoiler alert: there’s no real telepathy going on. By leveraging quantum entanglement, two separated parties can achieve coordinated outcomes that would be impossible using classical approaches, thereby creating the illusion of telepathic communication despite no actual information exchange.
However, the researchers write that their approach could potentially revolutionize — and possibly destabilize — the stock market trading by fostering near-instantaneous coordination between traders across vast distances, thereby gaining what traders’ refer to as an “edge” in the financial markets, according to New Scientist.
In essence, quantum telepathy exploits the bizarre nature of quantum entanglement, where two particles, no matter how far apart, can affect each other’s state instantaneously. This counterintuitive phenomenon has been a subject of theoretical physics for decades. Still, its practical implications are now being explored for one of the most fast-paced and competitive sectors of the economy—high-frequency trading.
The Mechanics Behind ‘Quantum Telepathy’
According to the researchers, even though the concept sounds far out, it might not be that far off. In fact, the approach might be surprisingly feasible even in today’s Noisy Intermediate-Scale Quantum (NISQ) era. Ding told New Scientist that the theory and technology needed to implement quantum telepathy is well-known in the literature and the equipment to actually carry it out is widely available.
“The equipment [that you would need] is very simple. These Bell experiments have been done since the 1970s, so it’s very standard equipment. You see it in a lot of laboratories,” Ding told New Scientist.
Ding and Jiang said that the model would feature a high-frequency stock trading system that operates on both the New York Stock Exchange (NYSE) and NASDAQ. These exchanges, separated by 56.3 kilometers, currently rely on servers to modify trading decisions based on local information. Here’s the catch though: To coordinate decisions, one server must contact the other—a process limited by the speed of light. Even at this maximum speed, it takes 188 microseconds for information to travel between the exchanges, a delay that can be critical in the high-stakes world of HFT, where decisions are made in millionths of a second.
Quantum telepathy could slash this delay, coordinating servers almost instantaneously through entangled particles, the researchers write in their paper. In this scenario, a pair of entangled quantum particles—say, for example photons—would be placed at each server. Interacting with one particle would instantly affect the other, bypassing the speed-of-light limitation, but without violating Einstein’s strict speed-of-light edict. This phenomenon would allow traders to execute buy and sell orders in perfect synchrony across different exchanges, minimizing latency to the time it takes to detect a particle’s state.
Market Implications and Regulatory Concerns
The implications of quantum telepathy for the financial markets would be both profound — and a little concerning. As Ning Bao, a quantum physicist at Northeastern University, told New Scientist, the first company to successfully implement this technology could upend the market dynamics.
“I think if you wanted to make a company to do this, you could do it within a year,” Bao cautioned in the science magazine. “It has the potential to circumvent the spirit of the law without circumventing the letter of the law.”
Theoretically, quantum telepathy in high-frequency trading could destabilize financial markets by giving certain traders an overwhelming speed advantage, potentially leading to unfair competition and market manipulation. This potential advantage might be so significant that it would prompt regulators to intervene, raising questions about the need for new rules governing quantum-enabled trading.
This potential is not mere speculation, the researchers emphasize. As Ding told New Scientist, the argument for a quantum advantage in this context is “mathematically clear-cut.” Unlike quantum computing, where definitive proofs of quantum superiority are still rare, the case for quantum telepathy is well-established and relies on commercial NISQ-era devices.
Despite the excitement, there are significant hurdles to clear before quantum telepathy can be deployed in the financial markets. For one, the mathematical models used in the current research are based on simplified scenarios, such as hedging. Scaling these models to more complex trading strategies will require additional mathematical work and experimentation. Ding hopes to collaborate with other researchers and utilize real-world trading data to refine the algorithms needed to optimize quantum telepathy for HFT.
Beyond High-Frequency Trading
While high-frequency trading represents the most immediate and financially lucrative application, the potential uses for quantum telepathy extend far beyond Wall Street. Ding and Jiang also write in their paper that quantum telepathy could also revolutionize distributed computing and even classical computer architecture.
In distributed computing, for example, coordinating processes across data centers spread over large distances could benefit from this type of much quicker-than-normal communication enabled by quantum entanglement. Similarly, in computer architecture, quantum telepathy might help manage the complexities of modern processors, where signal delays can become a bottleneck.
However, the path to these broader applications is still under exploration. The researchers stress the need for further theoretical and experimental work to assess the practical usefulness of quantum telepathy across different industrial scenarios. In particular, they call for studies to evaluate the achievable efficiencies and entanglement generation rates required for these technologies to be viable on a large scale.
With the requisite technology already available, the next steps involve rigorous testing, algorithm development, and, potentially, a rethinking of regulatory frameworks.
As Ding puts it, “My goal, in the end, is for this to be actually built.”
