Unleashing the Need for Speed: Achieving Ultra-Low Latency in Financial Trading
Latency has remained a prominent subject of discussion within financial markets. The quest for low latency has evolved into the pursuit of ultra-low latency (ULL), particularly in liquid markets, as advancements in technology have driven tick-to-trade latencies below one microsecond. Today, building a cohesive trading infrastructure that encompasses all the necessary components is important.
Therefore, we have delineated the key technological, networking, and trading strategy considerations essential for attaining ultra-low latency.
- The Influence of a Trading Strategy on Ultra-Low Latency
The latency of a trading strategy is influenced by the specific algorithms employed by a firm. Latency-sensitive strategies prioritize faster trades to generate alpha, although substantial gains can still be achieved without ultra-low latency.
These strategies often involve multiple markets where achieving ultra-low latency across each exchange is impractical due to market fragmentation. In such cases, reducing latency can be achieved through networking choices, such as utilizing microwave connections between data centers to outpace traders relying on fiber-optic cables.
As market fragmentation increases, the latency resulting from data normalization and order routing also rises due to the complexity of data feeds.
Latency-dependent strategies, on the other hand, are highly sensitive to even the slightest delay in nanoseconds as it can jeopardize the profitable execution of trades.
This is where Orthogone low latency trading systems come into the picture. They are most feasible in single-market scenarios, where optimization of every step in the tick-to-trade loop between your trading infrastructure and the exchange can be achieved.
- Cutting-edge Technology for Lightning-Fast Trading
To achieve ultra-low latency (ULL) in trading, application-specific hardware forms the fundamental building blocks.
In this regard, Field Programmable Gate Arrays (FPGAs) have emerged as a popular choice for ULL, surpassing software running on regular servers. FPGAs employ logic gates to mechanically define the trading process steps, enabling higher and more consistent speeds, even during periods of high trading volume.
In addition to FPGAs, ticker plant hardware has undergone improvements in processing speed and processor count to optimize the loading and sequencing of data packets. On volatile trading days, network bursts can lead to serialization or queuing latency, potentially hindering or eliminating profitable trades.
To estimate the necessary network capacity and processing power, many firms analyze packet burst data. Ultimately, it is crucial for ultra-low latency traders to ensure that their tick-to-trade system can consume, process, and execute trade logic at the same pace as the market moves.
Ultra-low latent trading technology relies on application-specific hardware and advanced techniques to achieve lightning-fast order execution. While there may be trade-offs in terms of deprioritizing certain steps in the trading process, it’s important to balance speed with compliance requirements and risk management.