Is this how stock trading works?

So this is called high frequency trading (basically trading very fast).

There are two types of orders: Market orders and limit orders

Limit orders are placed into what's called the orderbook. The orderbook is simply something that aggregates all limit orders at different price points into one place so that the data is readily accessible. When you execute a trade with a limit order you have to wait for price to reach your limit order to enter a position but in return you pay less in trade fees and in some cases the exchange may give you a rebate (cashback, though it varies from exchange to exchange). This is since a limit order adds liquidity to a market.

On the other hand a market order executes instantly but you pay more fees since you are taking away liquidity from the market. The fee incurred from market orders will make it so that even if you have price information say 5 trades in advance you can't profit with a market order since the fees will be more than any potential profit.

Your solution is then that you need to enter with limit orders and exit with limit orders if you want any chance at profits. To do this you need to work on extensive infrastructure for setting up your server, making a trading strategy that overtime makes money and quite a few other things.

Essentially I'd advise you to not try this as you'll almost be guaranteed to lose money. Even if you figure out a profitable setup you may not even be able to profit with limit orders due to the exchanges limit order fees. The reason funds can run the same strategies as you and profit sometimes simply comes down to the fact that they do more volume than you and can negotiate lower fees for their own accounts.

Tl;dr: Don't try to make a bot with this, you'll burn your cash and burn yourself out. A better bet is to measure how fast the speeds are then contact various funds in the high frequency trading space advertising your speed and see if they'd be interested in buying it or licensing your technology. You're 100% more likely to make money this way

You are a bit late to the game. High frequency trading has been around for a number of years already. It has reached the state where the computers doing the trading needs to be placed more or less in the same data centers as the stock exchanges -- the speed of light means that further aways means that you miss the profit to other computers.

The connection between trade centers is continuously being upgraded, the quote is from 2015:

Financial traders are in a race to make transactions ever faster. In today's high-tech exchanges, firms can execute more than 100,000 trades in a second for a single customer. This summer, London and New York's financial centres will become able to communicate 2.6 milliseconds (about 10%) faster after the opening of a transatlantic fibre-optic line dubbed the Hibernia Express, costing US$300 million. As technology advances, trading speed is increasingly limited only by fundamental physics, and the ultimate barrier — the speed of light.

The quote is from https://www.nature.com/news/physics-in-finance-trading-at-the-speed-of-light-1.16872

In January 2020, Matteo Aquilina, Eric Budish, and Peter O’Neill from Britain's Financial Conduct Authority published this study, illustrating how "low latency" market participants can make money off of others. I suggest you read it, because it's very clearly written for the general public, and explains how markets work.

I will first oversimplify their example even further and then adduce a historical example.

Suppose at the beginning everyone knows that some stock last traded at 10 dollars per share.

Suppose you later become aware that in London, someone just bought this stock for 20 dollars per share (or that a market maker is willing to buy this stock for 20 dollars per share). Because of your secret technology, you learn about it faster than most people in New York. You're probably allowed to trade on this information.

Armed with better information, you could immediately try to buy some of this stock in New York for less than 20 dollars per share, taking a view (hoping) that once more people in New York are aware of this price change, you will be able to re-sell the stock for more than you paid for it. (Of course, it's possible that the 20-dollar trade was a fluke, an artifact of some trader's fat fingers, and that the next trade will be much close to 10 than to 20.)

It is also possible that your superior new technology will allow your trade order to reach the exchange before other people's, and therefore your trade would be executed at a better price than theirs.

Now for the historical anecdote. When Napoleon lost the battle at Waterloo in 1815, the news of the battle's outcome reached London in a few hours. Before the battle, many participants in the British treasury debt market took the view that if Napoleon wins, then Britain would default on its sovereign debt. After the battle, the news reached some market participants faster than the others because some people realied on state of the art technology as of 1815 (telegraph and relays). Armed with a better information, they bought the bonds from the market participants who were still pricing the bonds at deep discount, based on the assumption that the battle's outcome was still unknown; and made lots of money.

You would definitely have some advantage. High Frequency Trading is all about speed and the fastest traders wins. Oftentimes, winner takes all.

The blog Sniper in Mahwah & friends digs into the state of the art of inter-exchange communication. The current state of art for reliable broadband connections are microwave dishes between major trading hubs such as New York and Chicago and London and Frankfurt. From the top of my head the four main drawbacks of microwave dishes are:

1. You need reasonable weather to get a good signal to noise ratio;
2. You need to have antennas between the exchanges, it's in general not possible to put these in a straight line along the earth's surface. So you can't take the shortest path;
3. You need multiple dishes. Repeating the signal will incur some lag;
4. Earth is curved and the microwaves travel along the surface. For example, neutrino beams could go in a straight line. Of course, everything that can go through the earth will be hard to receive.

The second makes it quite hard to transmit signal from the UK to New York. Theoretically balloons or solar powered drones over the Atlantic Ocean could work but that will be hard to maintain and at some point the return on investment will be negative.

Another approach is to have shortwave radio. These signals can bounce of the atmosphere and thus don't have to go in a straight line. A much larger range can be achieved that way. This allows connections over the Atlantic or Pacific Ocean. The drawback of this approach is lower throughput and lower reliability.

If your device overcomes one of these drawbacks and transmits at around the speed of light through air (for on continent communication) or optical fiber (between continents), it could work and would be quite valuable for established trading firms. Just having the device is not enough to make a profit out of this. Transmission of the data close to the theoretical optimum and established players have talented and experienced people working hard for them, expertly tuned software and datacentre colocation on top of having a fast connection between two locations. They do welcome any small improvement though, as reported on the Sniper in Mahwah blog, an old antenna tower in Belgium was sold for EUR 2 million.