Monday, October 11, 2010

What Makes High Frequency Trading Work

You’ve heard about computerized securities trading and what’s called high frequency trading. There was a lot of talk about this related to the “flash crash” last spring. But like it or not, we are in the era of automated stock trades. Some are initiated by human traders. Others are triggered by algorithms pre-programed to wait for certain conditions and then place the buy or sell orders automatically. Now, CBS News has gotten an inside looks at the machinery that makes this all possible. Watch “Robot Traders of the NYSE” and see if your jaw doesn’t drop.

Did you catch the part about how they had to equalize timing for all traders to keep the system fair? Once they started up this 3 football fields size data center, it turned out that where your servers were located physically in the infrastructure determined how fast you could get your trades to market. Yes, just the length of the cabling and whatever routing equipment was involved gave near-end locations an edge over far-end locations. How much can this really be? It was only microseconds, but in high frequency trading microseconds count.

The NYSE leveled the playing field by equalizing the access time to 65 microseconds for all players. Now, no one has an advantage... or do they?

Not all trading is executed on the New York Stock Exchange or on computers collocated within the NYSE facility. You could be trading other exchanges in New York, New Jersey or Chicago. You may need to access an overseas market from the US or vice-versa. What many broker dealers, investment management firms and hedge funds have done is collocate to a commercial facility, such as the ones that Telx operates close to major financial districts. Telx focuses on ultra-low latency connections to speed transactions to market. Through a partnership with Tata Communications, Telx offers colocation facilities in Canada, South Africa, Europe, UK and Asia. Telx and other carriers also now offer line services designed specifically for the lowest latency possible.

Do you have a requirement for unusually low latency facilities or connections? Find out what’s available in International International Low Latency Data Networks now.

Click to check pricing and features or get support from a Telarus product specialist.

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