Next-Gen Microwave Speeds High-frequency Trading

July 1, 2013

Move over fiber. Next-generation packet microwave systems are bringing ultra-low latency communications to financial trading networks, which rely on split second communications in move in and out of short-term positions to make profits on Wall Street. Super fast microwave technology may also play well in the LTE backhaul space.

The market for HFT is not large. Perhaps less than 100 companies employ computer algorithms to perform split second trading, but they earn billions in profits. As a matter of course, high frequency traders are willing to pay a high price to get the speed they need.

Exalt was approached in 2010 by financial trading network operators interested in microwave as an alternative to fiber for high-speed data transmission. Microwave is viewed as the next generation of connectivity between these decision centers and trading centers, according to Amir Zoufonoun, CEO of Exalt, who spoke to AGL Bulletin.

“There has been an effort over the last two years to find faster ways to make point-to-point connections with stock exchanges,” Zoufonoun said. “Typically the way people communicate over long distances has been to connect different fiber loops to make the shortest link, but it is still a jagged line.”

In the past, increasing trading network speed focused on various parts of the network infrastructure including switches, software, TCP offload devices and other components, however, Exalt’s research and development focused on delays caused by error correction. Zoufonoun said more speed can be squeezed out of the hookup by reducing the amount of error correction imposed upon the signal.

“The system senses where there is noise in the network and only applies error correction where it is needed, as opposed to applying the same error correction at every hop of the radio whether it needs it or not,” he said.

Zoufonoun expects high-frequency traders will begin to demand low-latency connections with government data centers that provide key economic indicator reports upon which they make their trading decisions.

“[Low-latency communications] is going to expand into a web [of microwave hookups], not just to trading centers but to information centers, as well,” he said.

Beyond the HFT market, there are many other applications that can profit from dropping the latency in transmissions, according to Zoufonoun, such as LTE backhaul, remote data storage and tele-surgery.

“Microwave makes a lot of sense [for many applications]. There will be lots of side benefits to this technology over time,” he said.

Microwave vs. Fiber

While fiber delivers high speed over short distances, it suffers latency delays over longer distances, according to Zoufonoun. Microwave, on the other hand, is nearly twice as fast as the speed of fiber over long distances. From Chicago to New York, for example, the currently installed Exalt microwave systems transport data at 8 milliseconds round trip versus the fastest fiber network at 13.1 milliseconds.

“Microwave’s advantage over fiber stems from two factors,” according to an Exalt press release. “First, microwave links are shorter. Second, since electromagnetic wave transmission speed is inversely proportional to the density of the medium, microwaves are naturally faster than fiber optic waves due to the higher density of glass vs. air. Furthermore, while fiber has already reached its minimum potential latency, microwave technology continues to evolve toward even lower latencies.”