High frequency trading (HFT) is now a term recognised by the mainstream. This wide familiarity has coincided with maturity of HFT practices, the explosion in their use, and a flattening out of the potential returns as competition increases.
Early adopters of HFT were able to leverage high-performance technologies to generate vast returns. Today, the environment is tougher, and technology investments are coming under more scrutiny than before, even in the high-performance trading space. Low-latency infrastructure architects are now taking a more strategic approach to connectivity, in order to yield higher performance, both in terms of trading profits and broader functionality benefits.
As high-frequency and quantitative trading techniques mature, trading firms are finding it harder to make money. Market practitioners are recognizing that speed of market access alone is no longer sufficient to stay ahead of the pack, as low-latency connectivity enters the mainstream.
Once upon a time, cutting market data costs was easy. That’s because – and you’ve all seen the photo – traders took every service from every supplier, and each service needed a discrete telecommunications line. The result was an unwieldy – even messy – trading desk that was tricky to make use of and hugely expensive to operate.
Direct exchange feeds – and real-time data feeds generated by alternative trading systems – have entered the realm of mainstream for today’s most demanding trading environments. By sidestepping the aggregation and normalisation process required for consolidated data feeds, direct feeds offer the fastest possible access to rapidly updating market prices, used by high frequency traders and other alpha seekers to drive their trading models.
Market infrastructure is evolving at a pace that even the most technology-savvy financial institutions find challenging. New execution venues are popping up everywhere fragmenting liquidity and creating cross-dependencies between primary and derivative marketplaces. The move to fast markets and trading automation is cutting response times and increasing data volumes. Markets have shown a 70% increase in volume over the last year alone.
