Monday, October 31, 2011

about High-frequency trading

I am working on high frequency trading platform for the last 3 years. currently most of our competitors now talks about latency for the round trip time takes at the magnitude of single digit micro-seconds within their own system, that is from market tick received to order leaves for exchange.  

Currently fastest speed of the round trip time I heard of  is achieved by utilizing FPGA technology, which has latency of only 2 micro-seconds.

Below is rough description of the idea of  speed of high frequency trading, but do not be fooled with the latency number they provided.  We can have further discussion or idea sharing in my following posts. A basic guideline is to make your market tick to order path as short as possible. And outside software itself, different combination of OS, Network Cards, Router, Switch will have huge impact on the system performance. FPGA board has its advantage to bypass OS completely.

High-frequency trading now revolves around microseconds and even nanoseconds. Picoseconds are on the horizon.
    1 millisecond (ms) = one thousandth of a second
    1 microsecond (us) = one millionth of a second
    1 nanosecond (ns) = one billionth of second
    1 picosecond (ps) = one-trillionth of a second
A fast trader can type and submit perhaps five trades in a minute, said Paul Michaud, a trading and risk management specialist at the software group of International Business Machines Corp <IBM.N> in Houston. In those 60 seconds, exchange systems and black boxes will soon be able to transmit 60 million trades, he said.
“Generally people view we’re in a race to zero here. I mean literally we’re in a race to zero. Speed of light is actually an issue for a lot of our clients,” Michaud said.  
“An electrical signal can travel down a wire 200 meters in one microsecond,” said Greg Allen, vice president of governance, architecture and planning at TMX Group Inc <X.TO>, parent of the Toronto Stock Exchange.
“A blink of the eye is about 200 milliseconds,” Allen said.     “The fastest exchange or ATS (alternative trading system) would’ve been in the range of 5 milliseconds,” referring to trading venues built up to five years ago. “Now, the the best ones claim to be around 500 microseconds — so half a millisecond.”

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