IF ONLY WE ALL HAD MORE TIME AND MONEY – LEARN HOW HFT ACHIEVES BOTH…

Gareth Richardson, Managing Director, Custom Connect UK

In time sensitive sectors such as Ultra Low Latency Direct Market Access (ULLDMA), autonomous market-making, algorithmic trading and High Frequency Trading (HFT), transactional speed directly relates to potential profit.

Custom Connect
Custom Connect

Technological advancements and changes to financial regulation have resulted in the evolution and deployment of ever more complex trading strategies, designed to mitigate trading risk whilst maximising profit in as short a time as possible. For example, HFT strategies often include multiple asset classes across multiple exchanges.

The short and long-haul connectivity infrastructure that interconnects this latency sensitive community to different co-location centres plays a pivotal role in the stability and continued success of a winning trading strategy. HFTs invest heavily in performance technology infrastructure. After all, if you can conduct successful trades faster than your competitors then you can ensure a stronger competitive advantage, a more effective strategy and higher returns.

So what should trading houses be looking for when it concerns telecommunications? There are three aspects to consider:

  • Ultra-low latency between every corporate site, data centre, local exchange and partner organisation
  • High performance networking that can cope with mission critical systems and scale in line with market growth
  • Vendor-agnosticism so your objectives are number one, not the profits of others

To begin with, the focus should be around choosing the right solution for each requirement, as no two trading strategies are the same. Not all strategies are ultra-low latency dependent, however for ones that are the days of measuring trades in seconds / milliseconds have long passed. In today’s global arena, financial markets now run at lightning speed. Market leaders measure time in nanoseconds and in some cases, picoseconds. Obviously, this desire for speed requires an appropriate infrastructural base.

Eradicating Delays

The challenge lies in choosing and designing a balanced and appropriate latency profile for each connection and strategy. Latency reduction costs money and with current technology options, costs can easily become prohibitive if they are not balanced against potential gains. Sourcing a chosen solution can be complex and challenging. In today’s climate even HFTs look to rationalise cost.

In this highly competitive arena, firms are now looking to ever more exotic locations to realise their advantage. This is particularly challenging for network sourcing and support departments. For example, emerging economies are a particular issue. They might offer the biggest revenue opportunities, but having constantly up-to-date information about the fastest and most reliable carrier connections in Moscow, Sao Paulo and Seoul, when traditionally internal infrastructure teams have been used to sourcing for New York, Frankfurt and Tokyo, can be difficult from an implementation, technological and cost perspective.

Ultimately firms need to select the most effective connectivity and partner for their objectives. For some this will be an intelligent IP network; a standard perfect for large organisations with known performance requirements; for others, a dark fibre network with its flexibility, its upgradeability to meet local growth demands and strong, regulatory compliant security.

An equally popular choice is Ethernet. When performance requirements are high, point-to-point Ethernet connectivity is the standard choice – guaranteed latency across the entire corporate network; strong service level agreements (SLAs); efficiency regardless of existing IT applications (video, audio, trading systems, virtualisation, cloud connectivity), visibility and scalability and finally, the cost of local area networking (LAN) in the form of global wide area networking (WAN).

For HFT companies, this in particular is a greatly needed attribute. There is little point in having the lowest latency in the market if a telecommunications infrastructure has not been effectively designed or lacks intelligence and management control measures. A lack of local knowledge could result in a poor choice and unreliable connections that suffer from latency fluctuations. The major challenge in this scenario is gaining and maintaining continued knowledge of the global carrier market.

Looking To The Skies

That said, the above only occurs if you choose a provider that has limited options or is compromised through not affording a balanced and agnostic view of the market. Undeniably, the marketplace is congested and if we consider how much a global implementation can cost, especially if it does not deliver on its promises, it becomes apparent how important it is for trading companies to be equipped with the right knowledge to make an informed decision.

This comes in the form of a provider that understands the market, its intricacies and its challenges. Look for a provider that wants to help you meet your trading objectives. Turnkey networks are inadequate for HFT – the network you receive should be custom-built with your specific requirements in mind.

This is achieved through a vendor agnostic approach. A provider with strong relationships, knowledge of the carrier landscape, an understanding of the entire trading spectrum (data centre connectivity and local access is as important as overall connectivity) and a customer service driven ethos will without doubt offer more value and support than the cheapest network vendor. Vendor neutrality is critical in this sector and searching for a partner that promises that will produce excellent results.

A great example of this is the development of new connectivity options built around HFT such as point-to-point microwave transmission. For firms that wish to invest in the lowest latency connections for a specific use-case, microwave could be the perfect choice, subject to a winning strategy. Offering a ~40% reduction in latency when compared to a similar fibre route, it promises a direct link without the slow-down associated with ground based communications.

Implementing a microwave connection would not be possible with a standard provider, especially one that does not specialise in the sector. Just like with trading, knowledge is key, the ability to act quickly is pivotal, neutrality pays, and bespoke solutions deliver the competitive advantage to win.

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