Thursday, May 2, 2013

How High Speed Traders Use Microwaves to Make Money


The days of traders shouting orders on the New York Stock Exchange's floor may soon be over. A new breed of investing, known as High Frequency Trading, has taken hold of the equities market—one that relies on computerization and automation to exploit momentary price changes for an investor's financial gain. And where latency is the primary measure of success, calculated in milliseconds, fiber might not even be fast enough. But that's where the microwave radios come in.

HFT activity accounted for nearly 40 percent of the total volume of equities traded in 2012, a figure worth some 6.7 trillion euros. That's 6.7 trillion reasons for a pair of companies, Perseus Telecom and Colt Group SA, to offer their customers a microwave radio transmission service between the NYSE Euronext Basildon data center in London— home to the Euronext cash and Liffe derivatives markets—and Equinix in Frankfurt—where both the Deutsche Boerse cash and Eurex derivatives markets reside. Together, they're two of Europe's largest investment hubs. 

Microwave radio is a line-of-sight transmission scheme that relies on a pair of high gain microwave radio antennas pointed at one another to transmit data at very high speeds. And by "high speeds," I mean they'll actually transmit data faster than the fiber optic networks offered by each company simply because the data travels a shorter distance— thanks line-of-sight requirement! Each radio relay has a maximum range of about 30 to 40 miles and are often located on mountain peaks because, again, line-of-sight and whatnot.

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