In the world of stock trading, latency – the delay between a trader’s action and the execution of that action – is a critical factor. High-frequency trading firms (HFTs), in particular, strive to minimise latency to gain a competitive edge. One technology that has dramatically reduced latency in stock exchange order transmission is the wireless microwave network.
How wireless microwave networks reduce latency
- Direct line-of-sight transmission:
Microwave networks transmit data through the air via high-frequency radio waves, requiring a direct line of sight between transmission points. Traditional fibre optic cables, on the other hand, often take longer, indirect routes to navigate around obstacles. The straight-line path used by microwave networks significantly reduces the physical distance data must travel, thereby decreasing transmission time. - Speed of signal:
Microwave signals move through the air, which has a lower refractive index compared to the one of the glass where the light signals propagate in optic fibres. This means microwave signals encounter less resistance, maintaining higher speeds and reducing latency. - Optimised routing:
Microwave networks are meticulously engineered to provide the shortest possible routes between key trading locations. By minimising the distance data must travel, these networks can significantly cut down on transmission time. This optimised routing is particularly beneficial for HFT firms, which require the fastest possible data transfer to execute trades more efficiently.
The impact of reduced latency
- Competitive advantage in trading:
For HFT firms, milliseconds matter. Reduced latency allows these firms to react to market changes faster than competitors, enabling them to capitalise on short-lived arbitrage opportunities. This speed advantage makes having the lowest latency a crucial component of their trading strategies. - Market efficiency:
Faster data transmission and order execution contribute to more efficient markets. When traders can execute orders quickly, it leads to more accurate and timely pricing of securities, benefiting all market participants. This efficiency helps narrow bid-ask spreads and enhances overall market liquidity. - Risk management:
In volatile markets, the ability to execute orders swiftly can mitigate risk. Reduced latency allows traders to respond more quickly to market movements, adjusting their positions to manage risk more effectively. This capacity for rapid response is particularly important during periods of high volatility or market stress.
Wireless microwave networks have revolutionised the transmission of stock exchange orders by significantly reducing latency. Through direct line-of-sight transmission, faster signal propagation and optimised routing, microwave networks provide a critical advantage in the high-speed world of financial trading.
As technology continues to advance, these networks are likely to play an even more pivotal role in the financial markets, driving further innovations and efficiencies.
See how the Euronext Wireless Network (EWiN) harnesses microwave technology