Low Latency Wireless Networks For High Frequency Trading
Traditionally, high frequency traders seeking the fastest connections between markets have looked to fiber-optic networks
. It's been a largely successful endeavour. Latency between the markets of Chicago and New York has been cut as low as 13.3 milliseconds.
But experience tells us that this is an industry that never sits still. In pursuit of the even faster times that can make all the difference in high frequency trading, some firms are looking to wireless solutions to give them the edge.
Attention is currently focused on the trading corridor between New York and Chicago, the second busiest in the world. Trading firms are busy securing licensed radio frequencies that have the potential to cut as much as 40 percent from the time taken to transfer data between the two financial centres.
One advantage of stepping away from fiber is the simple matter of distance. A signal transmitted through the air can take a considerably more direct route than a cable which has to negotiate geographical features such as large bodies of water or built-up metropolitan areas.
"Microwave radio technology's cost-effectiveness can level the playing field and make very low latency circuits available to more trading firms," says Len Gee of Cielo Networks." Added Gordon Moller, their CEO, "As a supplier of microwave radio systems used in traditional telecom applications, we noted the nascent HFT networks opportunity early and quickly developed low latency optimized versions of our systems. We've been delivering these systems for some time, while concurrently pursuing further latency innovations for our customers. Our sole focus in the HFT market is to provide the world's lowest latency point to point communications technology; we're faster than fiber now and steadily pulling out ever more circuit latency."
Since digital signals travel faster through the air than they do through fiber cable, some of those currently investigating the wireless option believe the technology could cut latency between New York and Chicago to as little as eight or nine milliseconds. While microwave radio technology has been used successfully worldwide for decades, deploying it in the HFT application is not without some challenges.
In order to insure interference free operational reliability, these circuits must use frequencies that are licensed and regulated by governmental agencies, and the availability of such channels may be limited, particularly on high interest intercity paths such as between NYC/NJ and Chicago. Also, microwaves radios are true line of sight dependent systems, meaning that long distance circuits typically must use high towers or mountaintop sites that can be expensive to obtain. Finally, although such radios now contain sophisticated adaptive systems to insure signal quality, they can on rare occasion be subject to momentary circuit degradation or even brief outages due to unique environmental conditions.
However, when these issues can be managed with proper network engineering, wireless technology may be disruptive in the HFT space. In a rapidly growing market, it could make smaller players more competitive with more established firms. HFT may not be ready to cut the cord quite yet, but it definitely seems that wireless has a big role to play in the industry's future development.
by: Curtis Lowe
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