Using Dark Fiber for Low-Latency Trading

The trading firm or investment bank that needs to connect buildings to support a low-latency trading strategy has a range of approaches to evaluate in relation to its unique situation.

The financial company might consider a fully managed service in order to minimize operational hassle and lower monthly costs. It might consider a fractional/“dim” service offering in order to strike the appropriate balance among burden, control and costs. Or, it might assess the tremendous business opportunity, fierce competition and rapid pace of technology innovation around low-latency trading and discern that using a private, dark-fiber network is the only sufficient, future-proofing solution for its environment.

Drainage Pipeline Cable

Certainly, the business case for going the dark fiber route grows more compelling as a financial company delves deeper and deeper into the low-latency game. For starters, the availability of dark fiber has expanded, and its cost has dropped. Even more importantly, the manic competition within the various forms of electronic trading (especially high-frequency trading and market making) has forced trading firms and investment banks to pursue even the slimmest of improvements in latency along the routes connecting trading venues and information sources.

Many optical networks have not been optimized for latency. Traditional telecommunication networks, for example, tend to build networks with many local stops—often along railroad routes—between cities because each stop provides additional opportunities to monetize services. Unfortunately for traders, each stop also produces latency. Similarly, many optical networks have been built with plenty of slack fiber coils along the way in order to allow for quicker, simpler route restoration in the event of fiber cuts or other issues. Those coils, too, add latency to a path.

Loose Tube Outdoor Optical cable

In creating a private, completely protocol-agnostic, dark-fiber infrastructure, the financial customer can select the ideal fiber paths and choose and configure its own equipment to ensure lowest-latency performance. This gives the company complete flexibility to take advantages of new advances in the enabling optical technologies. Innovation in low-latency technologies such as transponders, amplifiers and regenerators has been rapidly paced in recent years—resulting in massive latency reduction for the prized, Chicago-to-New York trading route, for example. If contracting with a provider of a low-latency service, the customer is to varying degree dependent on its partner’s willingness to procure, deploy and integrate such innovations.

Furthermore, while the monthly cost of a private dark-fiber infrastructure will turn off some trading firms and investment banks, the incremental cost and delay associated with turning up additional wavelengths is relatively small. The financial company becomes more fluid to respond and grow to capitalize on emerging business opportunities, as connections can be provisioned and activated as needed. And there’s zero potential for interference and latency caused by other sources of traffic.

In fact, there are good arguments for all three possible approaches to under girding a low-latency trading strategy: contracting for a fully managed service, opting for a fractional/dim offering or using a private, dark-fiber network. An individual trading firm or investment bank might even find applicability for multiple approaches to achieve the range of its business goals.

For more info, please contact a Sopto representative by calling 86-755-36946668, or by sending an email to info@sopto.com. Or, you are able to just browse our website.