High-frequency traders use 50-year-old wireless tech
High-frequency traders are turning to legacy microwave technologies for faster communications
In the world of high-frequency trading, where being ahead of the competition by a few milliseconds can mean profits worth millions of dollars, finance firms are increasingly looking to decades-old microwave technologies for a competitive edge.
Such firms are finding that wireless microwave technology, despite being in use for more than half a century, can deliver data a few milliseconds faster than fiber-optic cable. As a result, the once-stagnant industry of microwave communications is finding itself in an "arms race" among vendors of new competitive offerings, said Mike Persico, CEO of financial exchange service provider Anova Technologies.
"If you want to transport a little bit of data very fast, physics tells you that you have to go through air. Fiber is just not a good idea. It will slow you down," explained Stéphane Ty , co-founder of Quincy Data, which provides microwave services to financial firms.
Ty was one of a number of speakers who discussed the increasing use of microwave technologies at the Quant Invest conference last week in New York.
For financial services firms, getting some piece of competitive intelligence a few milliseconds faster than their competitors can be worth the cost of securing a faster link. Stock trades can take less than a millisecond to execute.
Microwave technologies have been in use for point-to-point connections for decades by the military and by broadcast television stations. Point-to-point wireless microwave transmissions, which operate in the 1.0GHz to 30GHz part of the spectrum, require line of site, though signals can be repeated along the route. A good signal -- such as between two mountaintops -- can travel as much as 300 kilometers, or around 186 miles.
Microwave use has declined in the past few decades as fiber-optics communications has been able to offer greater bandwidth. These days, the largest microwave link can offer only 150Mbps, though work is being done to develop gigabit microwave technologies.
One advantage microwave still possesses, however, is speed of transmission. Electromagnetic waves travel faster through air than through glass. Light, an electromagnetic wave, can travel at 300,000 kilometers (186,000 miles) per second in a vacuum, and nearly that quickly through air. Light, however, can only travel at about 200,000 kilometers per second in even the clearest glass.
Another speed advantage microwave technologies offer is that their paths tend to be shorter, because signals can be beamed across the most direct path between two points. The length of fiber-optic routes tend to be elongated due to the inability to get right-of-way along the most optimum routes.
One new hot market for microwave providers is between New York and Chicago, both cities with many financial services firms. In 2010, Quincy Data had applied with the U.S. Federal Communications Commission to secure a pathway between Chicago and New York. It found only one other provider that had also submitted a similar request. Since then dozens of other carriers have submitted requests to the agency. Quincy Data has been operational since July selling throughput between the two cities.
Based on the speed of light, the theoretical limit for sending information between New York and Chicago is 7.96 milliseconds. Right now, the state-of-the-art among microwave service providers is about 8.5 milliseconds, Persico said, noting how different providers are trying to secure the fastest rights-of-way and are developing technologies with the lowest latencies, all in an effort to offer the fastest sub-millisecond services for financial firms.
"We've been looking at [microwave technologies] for about a year now, in both Europe and the U.S.," said Ian Jack, head of the U.S. infrastructure business for the New York Stock Exchange, during a panel discussion on the topic. "We're looking at what the vendor community is doing and trying to leverage that as much as possible."
Performance is still a big factor, Jack said. Performance "is one of our big challenges as a potential buyer. If you look at the actual uptime for services, it's not brilliant. Every vendor has a new change, a revelation just around the corner, but we have yet to see that."
Rain can hamper performance with microwave technologies. So can low-lying clouds. "Interference can bring an entire network down, and you don't have that with fiber-optic networks," Persico said. He noted that, eventually, microwave technology vendors will compete more on how robust their networks are, once they offer approximately the same latency times.