I can't help but think of the stories from before stock market colocation was a thing. Nowadays the stock exchanges have a fair setup where people can put their machines in the same data center as stock exchange. And everyone gets to connect with an equal length wire. But before this modern solution, it was a free for all with companies trying various tricks to rent space as close as possible.
Isn't this sort of still the case in HFT, where some firms try building e.g. their own microwave radio tower networks to beat others by a few milliseconds?
Nit: the microwave networks themselves are a standard feature of a lot of exchanges, such as SIX and CME. There is some posturing between companies building receivers that you may have heard about[1], but that is largely because companies are building towers so close they are causing interference.
The tower location does not have much of an effect on latency because the microwave network in this case always terminates at NYSE. If you build your microwave tower a few feet closer to the transmitter (Chicago), then you have to run a few more feet of cable to the colo.
That's only if you're arbitraging between multiple exchanges at physically different locations. If you're just interested in having low latency to one market, you just pay the colo fee.
A possible use for SpaceX's Starlink as well. Starlink doesn't have to follow the curvature of the earth so over long enough of a distance it is actually shorter and quicker to use Starlink.
Under ideal circumstances Starlink is claiming a 15-20ms ping. That's already too high for HFT.
Also they're only orbiting about 200 miles above Earth, so unless you're already relatively close to your target location, you'll need to bounce your traffic across a whole bunch of satellites, each adding a fractions of a ms just for hardware processing + light speed to the next hop. In fact over any sufficiently long distance, doing this will actually resemble a longer curved arc circumscribing the arc of the Earth.
People who really need those extra few ms have little choice but to stick to the ground, near the exchange.
Don't you actually want to be as close to curvature of earth as you can? Or actually even under it. Straight line through the planet or crust would be the optimal route. Any distance you go up is making it longer than curvature.
I think GP is confusing things a bit. Starlink can actually be faster, but it's because laser links in a vacuum are on the order of 1/3 faster than terrestrial fiber optics. The distance is longer, but the information travels faster by a large enough margin to overcome the distance and result in overall lower latency.
Right, so if you can't go through the crust then going up would be another option. Over long enough of a distance, say NYC to London (or even farther), the overhead of going up first and then a "straight" line horizontally (it's not completely straight because it has relay between the satellites via LOS laser but each arc would be fairly long) and back down would be shorter than a line following the curvature. (Edited: This is wrong. I had conflated the lower latency with shorter distance as others have pointed out.)
It also does a much better job of explaining it than I have but it is a convincing argument for how Starlink can be useful and why traders would be willing to pay a lot for it.
> Over long enough of a distance, say NYC to London (or even farther), the overhead of going up first and then a "straight" line horizontally (it's not completely straight because it has relay between the satellites via LOS laser but each arc would be fairly long) and back down would be shorter than a line following the curvature.
That is nonsense, the route is longer. You are confusing stuff, light travels faster in air compared to fiberoptic cable, so the latency will be lower, but distance is actually longer.
> Nowadays the stock exchanges have a fair setup where ... everyone gets to connect with an equal length wire
"Everyone" is pretty questionable here - it's quite expensive to rent rack space in an exchange, and not everyone gets to do it. That said, I think basically anyone who has any business doing latency-sensitive trading is probably capable of getting a rack.
The prices are minimal -- at CME I believe it's ~15k/month for a 52U cabinet. You can rent these even as a private individual (several friends have rented individual racks as part of a syndicate group renting the whole cab).
Of course, that price isn't insignificant per se, but are minimal for anyone who actually achieves any benefit from having co-located space.
Hmm, my former firm’s colo expenses were quite a bit higher than that would suggest, but I don’t know the breakdown across all the different datacenters.
Yeah; the logical conclusion of free market doctrine is that everything will become a spot-traded market, traded at the highest frequency possible. Complete with all sorts of dodgy payyment for order flow, arguments over best execution, pseudo-indexes like LIBOR, and overt front-running of clients.
