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A Question of Speed - The race to zero still attracts many entrants

Published in Automated Trader Magazine Issue 33 Q2 2014

Regulatory fear, fierce competition, rising costs - a host of arguments have been made for why the race to zero is a race not worth entering. Yet, technology vendors are still reporting demand for anything shaving off a microsecond here or there. Anna Reitman talks to the competitors staying in this race about keeping ahead of the curve.

History is littered with stories of great wealth amassed by being first to actionable information. But the markets have come a long way since the carrier pigeon and some of the fastest operators are claiming that low latency has become less important than ever.

That might not be true for professional market makers, said Matthew Haraburda, president of Chicago-based passive HFT firm XR Trading. "Automation brings a level of efficiency that makes it tough to compete. You are not going to get outsized return just using technology, but to be a professional market maker you need some of the best technology."

Some of the smart money, Haraburda said, is going to wireless networks, particularly as microwave and millimeter microwave technologies are increasingly deployed. "It is still early days in this space but it is also where there is still tremendous catching up to do."

Microwave channels have become common because an electro-magnetic wave is closest to the speed of light, an important feature if strategy is dependent on trading between major financial centres. Firms such as McKay Brothers and Perseus are well known providers of hardware, though costs for installation and bandwidth are considerable and there are security and atmospheric risks to consider...

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