The speed of a trade is often crucial on the financial markets with participants in the equity, derivative, foreign exchange (FX) and other markets often relying upon fast delivery and execution via powerful data centres and good connectivity. This blog from Gareth Richardson, managing director of Custom Connect UK, examines the low-latency cabling and connectivity options from fibre to the microwave.
For financial organisations, connectivity is everything – the trader’s ear to the ground, a company’s relationships within the financial markets, local trades in emerging territories – are all important. From an IT perspective, delivering this communications web fast and providing low-latency connectivity between trading sites, co-lo data centres, and even office-to-office networking or to the desk via gold cabling all matters.
In the modern global economy your trading strategy is only as powerful as your digital reaction speed. Your profit potential is heavily influenced by how quickly you can make decisions. For trading houses, in particular time-sensitive sub-sectors like high frequency trading (HFT) using algorithmic programs, the faster a firm’s capabilities are, the less chance you have of slippage. Slip behind others on a trade and you lose out but if you have a low-latency infrastructure and connectivity – via cables or in the ether on microwaves – then you can maximize revenues.
Successfully implementing a global network with the necessary performance to cope with low-latency trading is, however, not easy. Trades are measured in nanoseconds and picoseconds, requiring careful planning to accommodate these speeds.
Considerations include the connectivity standard itself; its cost-effectiveness, value and Return on Investment (RoI) potential for sometimes very expensive infrastructures. The ability of your connectivity to function globally is also important as increasingly it must tap into emerging economies where the IT challenges are vastly different to traditional trading hotspots in London, New York and other established hubs. You should also consider implementation interoperability with other systems and ensure a technological support base that meets the specific needs of your organisation and gives resiliency.
The Connectivity Options: Cabling, Fibre, Net & Microwave
Out of the box connectivity is inadequate for most financial market participants, regardless of the solution chosen, with bespoke solutions typically required if you truly want low-latency performance. Traders and other market participants should consider one of the following connectivity options, often in a customised, bespoke form:
• IP-based networks.
• Fast fibre cabling.
There are pros and cons of each connectivity option above, with the fastest microwave option in descending order of speed also being the most expensive and somewhat reliant on ‘line-of-sight’. Whatever choice financial market participants choose, there are certain characteristics every network built around high performance trading should possess. These include ultra low-latency, security, integration possibilities and strong service level agreements (SLA). A high RoI potential to justify the expense and an appropriate, resilient support structure are also necessities.
For some players, traditional cabling’s evolution into intelligent IP-based networks will be enough. It is cost effective, highly reliable and secure, and it is perfect for large organisations that already know their performance requirements. When growth does occur, it is easily scaled up to meet demand while retaining the same excellent ‘always-on’ availability levels.
Alternatively, there is Ethernet, delivering point-to-point guaranteed latency across the entire global organisation. Coupled with efficiency controls and SLAs that protect the customer, it delivers the cost of local area networking (LAN) as a global wide area network (WAN), and with all the performance and security advantages that accompany that.
For traders looking for something a little more specialisation, dark fibre is worth considering due to the fact that it provides the lowest-possible ground-based latency on the market; has extremely strong levels of security; and can be upgraded to meet future demand at a highly competitive rate.
Finally there is the fast microwave connectivity option. Bypassing the performance issues created from ground-based interference, microwave connections are best implemented as point-to-point single connections between extremely competitive locations. Typically offering 40% lower latency than the closest ground-based equivalent, the microwave option promises huge competitive advantage potential if your organisation can meet its large financial demands.
A Long-term Relationship: Be Vendor Agnostic
The technology and connectivity options discussed above are important, but equally vital is vendor agnosticism. Enlisting the assistance of a connectivity expert that understands the unique challenges associated with financial services telecoms will be more effective and rewarding than if you choose a provider that is merely selling its own solutions. These can be helpful, but you should cast your net wide to ensure a range of different available options as a matter of best practice.
Being vendor agnostic also ensures the available connectivity options will meet your specific aims. A neutral provider will possess a range of partnerships critical to achieving your global objectives, whether that be relationships with local access partners; global carriers; fast co-location data centres and cloud operators for high performance IT; or easy integration with modern trading systems and platforms.
Your trading strategy should be an intrinsic component of your IT policy. It is all about balancing the appropriate latency profile for your organisation. Reducing latency, especially from a global perspective, can be prohibitively expensive if mismanaged or approached from the wrong angle. For example, there is little point having a high performance HFT network without a supporting global ambition. It will cost your organisation heavily, but for some firms this is a legitimate issue as they have mistrusted a provider that has only been interested in its own solutions rather than their unique needs.
Conversely, if you do have a genuine need for low-latency global connectivity, possessing any alternative – i.e. a standard business connection – will negatively impact trading operations and mean you cannot be an effective player. In this instance, it is important to carefully search for a long-term partner that can support your growth potential and consistently deliver low-latency performance.
A successful approach is to first assess your technological needs with your chosen connectivity partner, then, taking into consideration your growth plans and local requirements, select a network that has the performance and flexibility capabilities to drive your trading strategy towards success. Choose wisely and you could win big.