Commercially available quantum technology could let stock traders coordinate decisions to buy or sell nearly instantaneously using a technique called “quantum telepathy”.
Quantum technology could shake up the stock market. Traders working at distant stock exchanges could coordinate decisions to buy or sell nearly instantaneously by using entanglement to create a phenomenon called “quantum telepathy” – and all the quantum devices they would need to implement this scheme already exist.
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| Traders on the floor of the New York Stock Exchange Michael M. Santiago/Getty Images |
This takes advantage of a counterintuitive phenomenon that Albert Einstein dubbed “spooky action at a distance”, in which two quantum particles can influence each other instantaneously across large distances. In the 1960s, physicist John Bell devised a test to confirm that our world really can support such non-local correlations, and experiments that followed his work cemented spooky action as a reality. They also opened the door for even stranger scenarios where particles seem to collude without having to communicate.
Now, independent researcher Dawei Ding and Liang Jiang at the University of Chicago in Illinois argue that this kind of quantum entanglement can be used to gain advantages in the stock market, using only devices that are already commercially 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,” says Ding.
He and Jiang considered high-frequency trading where trades happen in as little as millionths of a second. In their mathematical model, a high-frequency stock trader named Zhuo operates on the New York Stock Exchange (NYSE) and NASDAQ. The data centres of these stock exchanges are 56.3 kilometres apart. Zhuo has a physical server at each data centre, each of which modifies its selling and buying decisions only based on local information it receives at that exchange.
For the two servers to coordinate decisions, however, one must contact the other. The fastest that information can travel between them is at the speed of light, which would take 188 microseconds, or enough time for dozens of trades to be made. Ding says this delay could be minimised to just the time it takes to detect a particle’s state if the two servers coordinated through what he and Jiang have called quantum telepathy – it is also known as quantum pseudotelepathy, a term coined a few decades ago by physicist Alain Tapp, as there is no actual telepathy occurring.
The new scheme relies on a pair of entangled quantum particles, such as particles of light, with one at each server. The quantum state of the two would be prepared so that interacting with one changes the other, as with everyday entanglement. The difference here is that the second particle’s resulting change of state maps onto a set of pre-programmed trading decisions. For instance, if Zhou wanted to hedge his bets, the entanglement could be prepared such that pushing the particle at the NYSE into a state encoding “buy” would immediately change its pair at NASDAQ into a state that means “sell”.
Ding says that unlike quantum computers – where definitive proofs of quantum advantage are rare – the argument for an advantage with quantum telepathy is mathematically clear-cut. Plus, devices that produce pairs of entangled particles can already be obtained from several companies.
Ning Bao at Northeastern University in Massachusetts says the first company to use quantum telepathy for high-frequency trading could destabilise the market, which, in his view, raises the question of governmental regulation. “I think if you wanted to make a company to do this, you could do it within a year,” he says. “It has the potential to circumvent the spirit of the law without circumventing the letter of the law.”
A representative of the US Federal Trade Commission declined to comment on whether the agency is considering regulations for such quantum stock market manipulation. The US Securities and Exchange Commission did not respond to request for comment from New Scientist.
While Ding is excited by how immediately technologically feasible this research is, he says that mathematical work remains to be done to develop efficient algorithms to determine optimal quantum telepathy schemes for trading situations beyond the simple hedging example. He is hoping to work with real-world trading data and collaborate with researchers who specialise in related experiments to make quantum telepathy on the stock market a reality.
“My goal, in the end, is for this to be actually built,” he says.
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