A researcher says a tiny tweak to how certain trades happen could make for more efficient stock markets, and it’s already being adopted by major players.

The blink of an eye takes just a tenth of a second, but that’s an eternity in today’s stock markets, where automated transactions are calculated in millionths of seconds.

Stock market traders have always relied on speed to gain competitive advantage, but over the past 10 to 15 years, the development of high frequency trading technology has changed the game — to the point where investors can make fortunes by buying and selling in minuscule increments of time.

Some are concerned that this so-called «arbitrage strategy» — which involves simultaneously buying and selling to take advantage of minute differences between prices — could affect the health of the overall market.

But researchers at the UBC Sauder School of Business and at Kellogg School of Management are proposing a key fix: a virtual speed bump.

«Two things that we care about as traders are liquidity and the informativeness of prices. Liquidity happens when transaction costs are small — so if I buy something and sell it immediately afterwards, how much money do I lose? If that’s a small amount, then that’s a good market,» explains UBC Sauder assistant professor Markus Baldauf, a co-author of the study.

Story Source: Materials provided by University of British Columbia — Sauder School of Business. Note: Content may be edited for style and length.