When it comes to online trading, network latency is everything – because delays are more costly in this industry than almost any other. The stock market doesn’t stand still while data is in transit, and the difference between a “fresh” price quote and one that’s a few milliseconds out of date can cost or earn brokers and their clients hundreds of thousands of dollars.
The importance of network latency to financial markets is magnified even more by the growing prevalence of algorithmic trading and high-frequency trading (HFT). About 75% of share trading in the U.S. is computer generated these days, and much of this trading relies on ultra low latency networks.
In the context of online trading, latency is the time it takes for a price quote to travel from a broker’s server to a trader’s server – this can be trading within the same city, to global investing around the world.
In part, latency is a function of the physical distance data must travel, as well as the number of “hops” it has to take along the way due to routing dynamics. Latency is also a function of the speed of the networks over which the data travels. Especially during periods of volatile market activity, prices can change during the latency period of a transaction. The financial advantage of a low latency network connection is obviously huge.
Many large brokerage services are looking to minimize latency across a global network that encompasses all their key markets: New York, London, Tokyo, Moscow, Sao Paolo, etc. The global network service providers that serve these organizations work with Telcos and other infrastructure providers to carve out the “shortest path” with the fastest access and lowest latency between these key points.
Everybody involved – especially the Brokerages who are paying for premium routing and low latency – wants to know if network performance (latency, jitter, packet loss, etc.) is in line with agreed SLAs. To maintain a competitive edge and meet order execution timeframes measured in microseconds, latency must be squeezed out of the network by every possible means.
How can financial services organizations gain competitive advantage by minimizing latency? There are many approaches, from the data center on out, which can help streamline, troubleshoot and guarantee network performance.
But the bottom line to any approach is this: to reduce latency you first must be able to measure it — continuously and accurately over a global network, much of which you don’t own
Network performance management technology enables financial services organizations to:
Continuously monitor latency and other vital network KPIs to and from any IP-based target, anywhere in the world
- Proactively manage network performance to troubleshoot outages before they impact users or customers
- Pre-assess new network segments prior to application deployment
- Measure average latency between your data centers and traders and other potential business partners, to help in choosing the best service providers
The ability to manage latency and other network performance parameters can help to ensure the availability of online trading platforms, reduce errors in large data transactions (or during times of high transaction volume) due to packet delivery delays, improve customer service, reduce overall IT costs, and much more.
Given security challenges, increasing use of virtualization and cloud computing, the financial service industry is not the only area where latency matters. The bottom line is network performance issues have a major impact on any organization. To stay ahead of the game, companies must explore remote performance management or risk productivity and business failures.