This information is available to all traders at the same time but then has to be digested and its impact evaluated. The same news can have an entirely different impact on different stocks. Traders then have to decide what to trade, how much to trade and, crucially, when to trade.
Out of all this seemingly unconnectedness, synchrony still emerges between entirely unrelated trades. Saavreda and co say that 96 per cent of simultaneous trades–those that occur within a second of each other–are of different stocks.
That points to the existence of a kind of sweet spot for trades, a moment in time when it is best to cut a deal. Traders that hit this sweet spot are more likely to come out on top.
And that’s exactly what Saavreda and co discovered. “We found that when a stock trader in that ﬁrm trades at the same time as other traders in the ﬁrm, his or her ﬁnancial performance is signiﬁcantly increased,” they say.
But here’s an interesting twist. During the working day, traders constantly message each other through a network that, by law, has to be carefully monitored. Traders use this system to make sense of the news they are receiving.
During the period in question, the traders sent more than twice as many messages as they made trades: more than 2 million of them. To look for links between these messages and the trades, Saavreda and co trawled through these too.
It turns out that messaging patterns are positively correlated with the level of synchrony. In other words, as traders exchange more messages, they become more synchronised.
That means the behaviour of traders and cicadas is strangely analogous. Just as chirping is designed to improve reproductive success, messaging can improve trading success. But both work best when they are executed at specific sweet spot in time .