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Author Archives: Brian Quigley
Using Dark Fiber for Low-Latency Trading
The trading firm or investment bank that needs to connect buildings to support a low-latency trading strategy has a range of approaches to evaluate in relation to its unique situation.
The financial company might consider a fully managed service in order to minimize operational hassle and lower monthly costs. It might consider a fractional/“dim” service offering in order to strike the appropriate balance among burden, control and costs. Or, it might assess the tremendous business opportunity, fierce competition and rapid pace of technology innovation around low-latency trading and discern that using a private, dark-fiber network is the only sufficient, future-proofing solution for its environment. Read more
Low-Latency Trading via Fractional/Dim Services
“Fractional,” “dim,” “passive,” “colors,” “lambdas” … there are a lot of names for this flavor of available service for supporting low-latency trading, and there are a lot of reasons why a trading firm or investment bank might choose to take this approach.
In a fractional/dim service, a trading firm or investment bank contracts with a network operator for a specific “color” of light across a fiber-optic network that links locations in a metro application that are strategically important to the customer. The Service Provider essentially places an optical multiplexer on a pair of fibers that has inputs for multiple colors and combines them for transport across a pair of fiber. On the other end, they place a demultiplexer to break out individual client handoffs. Generally, a coarse wavelength division multiplexing (CWDM) multiplexer allows four, eight or 16 colors, and a dense WDM (DWDM) multiplexer allows anywhere from four to 120 colors. Read more
Opting for a Managed Service for Low-Latency Trading
The stakes are very high; the margin for error is very low, and the technology choices and strategic tradeoffs are complicated and nuanced. Such is the terrain of decision-making that financial Information Technology (IT) managers must negotiate in connecting buildings to support a low-latency trading strategy.
And this points to the first reason that a trading firm or investment bank might elect to contract for a managed service to support low-latency trading, as opposed to opting for a fractional or “dim” fiber offering or using a private dark-fiber network: It takes the edge off the choices. The Service Provider manages the link and its traffic from end to end. The financial company does not need in-house expertise and experience in building-to-building networking technology. The monthly cost over dark fiber may be lessened substantially. The customer gains technical support for maintaining its trading network without having to expand its IT staff to worry about site-to-site links. Read more
Another Building Block of Low-Latency Trading: Efficient Optical Transport
So, in the drive to wring even the tiniest inkling of latency from your trading network, you’ve painstakingly identified the shortest routes between trading venues, information feeds and co-location facilities. Cognizant that eliminating a mile of physical fiber on these routes translates into a 16-microsecond savings in roundtrip latency (and that the difference between winning and losing deals in contemporary electronic trading is measured in much smaller increments), you’ve mapped routes that bypass as many detours under roads and up and down manholes as possible.
The next step is to dive into the guts of the gear enabling optical transport along the fiber network. Amplification, color conversion, dispersion compensation and regeneration are the main optical-networking functions commonly performed by hardware transmitting and receiving light. But the ways that these processes are carried out differs significantly among equipment providers. Managers of financial networks must investigate the impact of each, end-to-end across their infrastructures, in order to ensure that latency budgets are minimized.
Speed of Light in Fiber – The First Building Block of a Low-Latency Trading Infrastructure
Speed has always been crucial to successful trading. However, for firms engaged in electronic and algorithmic trading, the speed of the trading infrastructure is almost as important as the trading algorithm itself. Most discussions involving latency optimization revolve around various equipment such as feed handlers or servers that process market data, order management, analytics and risk.
We are going to focus on optimizing the optical transport portion of the trading infrastructure, which deals with the speed of the physical communication connection between geographically separated execution venues and data feeds.
