From the May 01, 2012 issue of Futures Magazine • Subscribe!

Is high-frequency trading too fast for our own good?

Trade Trends

Technology challenge

Trading times have shrunk from seconds to milliseconds in the past decade, and some are talking about microseconds — which would require unheard of increases in technology.  Just one quote per microsecond on 1,000 symbols is 1 billion quotes per second. 

“That rate would saturate a terabit network, which is a future technology, and completely fill a terabyte drive in about 10 seconds,” says Hunsader.  

Indeed,  squeezing out those last few milliseconds is proving difficult.

“It’s more complex than many people realize,” says Daryan Dehghanpisheh, Global Director of Financial Services & Institutions for Intel. “These systems not only have to write fast code, but they have to write code fast, which means you’ll need lots of tools in multiple libraries just to get that microsecond.”

He adds, however, that plenty of trading houses are putting in the effort and, in the process, contributing to the development of new technologies that will have knock-on benefits for the entire financial system.

“We spend a lot of time with high-frequency traders because they’re forcing us to think about performance, latency and security,” he says. “These are the same issues that arise in payments for retail banking, where smart cards handle millions of transactions a second [around] the globe.”

In fact, he says, HFT has benefitted more from other sectors than it has contributed.

“I can chuckle when I hear traders talk about the overwhelming two billion messages a day, because Google, Facebook and Flickr are handling five billion posts a second,” he says. “High-frequency trading is not providing bleeding-edge technology, it’s consuming bleeding-edge technology. The markets are more of a beneficiary than a benefactor.”

Many traders, like Mark Reece, an eTrading Solutions Architect at HSBC, say the most important challenge now isn’t speed but monitoring capabilities.

“The traders I was working with were getting arbitraged on their exchange-traded funds business and assumed this was because they were taking too long to change the quotes and manage their orders onto the exchange,” he says. “It was only when I compared the time-stamped quotes being placed against the aggressive price taker orders that we discovered that … it was only very rarely that we got hit on a price that we were planning to change.”

He ran a check on his entire system using ITRS Geneos and found the problem wasn’t hardware or even software, but settings.

“Once we had the data, we usually found that it was something straightforward to fix — like the price construction parameter was set at a 10-second interval instead of a 100-millisecond interval,” he says.

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