Low latency efforts frustrated by exchanges

Tools

It's no secret that high-frequency trading firms have stumbled on hard times as of late, as the sort of volume that sustained them in the golden era dried up a bit.

But that hasn't stopped the race to the lowest possible latency. Anticipating better days, high-frequency firms have every intention of continuing to push the limits, but there's a huge roadblock in their way.

As reported by Bloomberg Businessweek, "while the traders have continued to get faster, pouring millions of dollars each year into improving their execution times through better software and equipment, the exchanges haven't kept pace. As a result, the firms that show up first in line to execute a trade have to wait for the exchange to catch up, and in a matter of microseconds, their speed advantage disappears."

One expert was quoted saying, "The equipment of many stock exchanges recognizes a trade only every 30 to 40 microseconds. The first guy in line now has maybe a 60 percent chance of winning. It's random."

This will place a premium perhaps on intelligent software, more so than merely fast software. Increasingly, the software will have to account for the built-in randomness. At the same time, this is something of a challenge for the exchanges. They have invested massively in their low-latency co-location infrastructure and it is still not quite up to snuff. 

For more:
- here's the article

Related articles:
Low latency race heats up
NYSE weighs in on HFT, market structure issues