This is taken from http://tententwo.com/

I have talked to people who do this sort of thing. I'm no expert but here is what I think to be the general gist.

These people are known as black box traders or arbitrage traders. They construct computer systems to automatically identify opportunities and execute trades.

There are two parts to the task. Identifying the opportunity and executing the transaction.

Identifying opportunities requires low latency data from the exchanges, which includes not only network latencies but also processing latencies. Opportunities within a single market are essentially non-existent as the various merchant banks and brokerages have been doing automated trading in this space for some time. The more recent black box traders usually focus on arbitrage between exchanges or through synthetic instruments.

Arbitrage between exchanges consists of looking for an instrument that is listed on more than one exchange and identifying when the orders get out of sync, such that you can make money by buying on one exchange and selling on the other. For example, Royal Bank of Canada trades on NYSE and on the Canadian TSX exchange. The stock is traded in US $ on the NYSE and in CA $ on the TSX. Its possible to write software that looks at the orders on these exchanges and at the foreign exchange rate such that opportunities can be identified.

The second group of opportunities is through synthetic instruments. This is much more technical and I don't really understand it. Essentially what is done is that the software identifies inequalities in the market based on a basket of instrument that, when traded together add up to an instrument. These synthetic instruments are made up of various positions on real instrument. For instance the synthetic might consist of an equity and several options to buy or sell that equity.

Once the opportunity is identified then the order must be executed before the market picture changes. For this, low latency order execution is required. I think that traders may use two different boxes, co-located at the data vendor and at the trade execution provider to reduce latency as much as possible.

Big surprise, the video refuses to load unless you have Windows Media Player. Despite the fact that I view wmv's all over the net just fine with mplayer, yet somehow MS can't seem to make this work. Typical. MS needs to get a clue and realize that they can't expect to gain market share in new areas if they lame out all of their products to try and reinforce their OS monopoly. They don't seem to be able to see the flip side of their reasoning, which is that loss of OS market share will be amplified in their other products rather than mitigated. Do they honestly expect to pull market share from youtube while telling users to go away until they install windows?

I generally agree that this is a big negative for the OS community and IT community in general. However, I think IBM will be more likely to kill off Solaris than stop supporting Linux. They understand that there are more Linux people than Solaris people, even if Solaris is a better os for enterprise computing (IMHO and yes I use both)

The reason Sun is in trouble is 100% a marketing issue. They need to sell their hardware products in a consistent way. People have the idea that their hardware is over-priced and this makes it difficult for people like me (IT professional) to recommend their gear to the boss. What really irritates me is that if I look on their site I see a 5120 for ~$15,000 if I look on Ebay, I see the same server for $5500, and if I bother to contact a reseller they will immediately drop the price to $4500. Now, at $4500 this machine is interesting but at $14,000 its insane. How many people look at the Sun store and say "Holy shit this stuff is over priced".

They should just shut down their online store and point people to resellers. As it is, their store is a big advert that says, "Our stuff is cool but absurdly over-priced".

And their stuff is good. I have a couple 5120s and they run Oracle like you wouldn't believe. They far exceeded my expectations in regards to their ability to handle our application load.

Also, I have never had a problem with installation of Sun gear or any quality concerns. Racking and install always goes tickity with a Sun server. This is unlike any other vendor that I have dealt with.