Wringing Trading Delays Out of the Clouds
October 19, 2009
Commodity trading firm Kottke Associates has watched high-frequency trading applications move from traders' workstations onto company servers and into co-location facilities, where they sit close to matching engines of the Chicago Mercantile Exchange and other venues.
To take part, Kottke has used services which host its software and data on remote servers or provide connections that allow it to conduct trades at trader workstations in its offices on West Jackson Blvd. in Chicago. But the costs of the software licenses, server rentals and network infrastructure add up.
Six months ago, the firm started trading in the cloud, said Kottke vice president Mike Crouch-and there were immediate savings.
"Now I don't have to have the latest and greatest networking," he said. "And my trader workstations can be just graphical delivery devices instead of heavy-duty analytics machines."
Without the need for high-speed networks and trading workstations, traders can now work remotely or even at home, opening the way for satellite offices, he added.
Another advantage to using a Web-based service is that it only took a couple of days to get going. By comparison, setting up link to a new exchange has taken as long as six months with the other vendors, he said.
Kottke started using Denver-based trading platform vendor CQG Inc.'s Spreader product six months ago, which delivers high-performance derivatives trading functionality without sacrificing speed, he said.
With CQG, the trading algorithms run on servers located as close to the exchanges as possible-and in co-location facilities where available. In Chicago, the CQG hardware is located in the same building as the exchanges.
Kottke hasn't measured the latency for the CQG Spreader or compared it with those of the other vendors, said Michael Prieto, the firm's systems administrator. However, it seems to be working faster and with fewer problems than the other products the company has used, he said.
According to CQG, it takes less than a millisecond for the system to receive information from an exchange, make a decision based on that information, place the order, and have the order be processed by the exchange.
For smaller firms, like Kottke, cloud-based trading allows it to compete with the fastest players in the market. Some of the biggest names in high-speed trading, such as GETCO and Citadel, are based in Chicago.
"The real advantage is that when we're doing inter-exchange type of transactions-say, Eurex versus CME-they have a high-capacity server in both co-location facilities and a high-speed data link between the two," Crouch said. "A firm my size has neither the technological capability nor the financial capability to do that."
Reducing the latency of clouds is critical to getting more widespread adoption on Wall Street. To accomplish this, cloud providers try to minimize three key factors: the total distance that data has to travel, the number of hops that data has to make, and the turnaround time at each hop. If data was an a passenger going on a trip, this would be equivalent to picking a closer destination, opting for the flight with the fewest transfers, and choosing airports that are easy and fast to navigate.
