Nicholas Pratt
Nicholas Pratt

Gaining competitive advantage with ultra-low latency FX connectivity

High frequency trading is often referred to as an arms race. While this image evokes all the machismo traits of the capital markets, it also suggests there is a huge amount of overspending on unnecessary tools - after all, what's the point in being able to blow the world up five times over? The pursuit of ultra-low latency is one area of high frequency trading where such spending has been questioned. Of course it's important to have an efficient and timely trading process but how many milliseconds do you really need to shave off that execution time? Exactly how close to the point of execution do you need to co-locate your servers? And what happens when everyone ends up with the same 0.0000001 milliseconds latency in the end?

The need for speed has long been a mantra of the equities market as aggressive traders look to extract any possible time advantage in the battle for the absolute best of the best in execution. But is ultra-low latency going to prove to be equally sought after in the FX market where, typically, time is less of an issue for the bulk of participants? Or will the market remain apathetic around the whole latency debate?“I don’t think latency will be quite the same sought-after trait in FX as in equities where there is a lot of hype,” says Bob McDowall, research director, Europe, for Towergroup. “In FX although there is a lot of trading, much of it has a medium-long term focus where traders are taking a 1 to 3 year view of the world and responding to events. There are some specialist funds out there that are trading on the volatility of the dollar on a daily basis – these funds do exist but they are in a minority.”There is also the issue of whether the majority of trading systems...continued

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