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architecture are purchased in a costly upfront purchase – to operational expenditure, where computational power is used in a way akin to a pay-as-you-go model. He points out that implementing a cloud-based model enables FX firms to focus resources on their core business objectives, while benefiting from the economies of scale latent within a cloud provider’s data center and IT architecture. “Te cloud makes this huge computational processing capability available to you. It is an incremental cost, removing redundancy of hardware,” he adds.
Costs and efficiencies
Tolman says the advent of cloud-based solutions – either in the form of a private or external cloud provider – provides FX market participants with the ability to significantly reduce levels of redundancy of unused computational power. Tolman argues that it is not essential for banks to have levels of redundancy on hardware of 95 per cent, which amounts to latent power that is only fully utilized in exceptional circumstances, such as a 20-fold increase in volume transactions.
In a highly publicised report, Gartner, the research analysts, predicted that worldwide cloud services revenue would increase from $46.4 billion in 2008 to $150.1 billion in 2013. Te growth in cloud computing has been bolstered by its capacity to reduce IT costs, as a result of the economies of scale cloud providers obtain. For example, Amazon’s public cloud – Amazon Elastic Compute Cloud (EC2) – can reduce the cost of using a server – which typically costs $10,000 a year to assign inside a bank – to as little as $72 a month, according to financial software specialists.
“Cost, flexibility, and scalability are extremely important [for small and medium-sized HFT, FX firms],” writes Sreekrishna Sankar an analyst at Celent and author of its recent report on high-speed trading infrastructure. “Investing in costlier technologies is a huge risk for firms starting from a small footprint and restricts them from adapting to the market. HFT in FX is a rapidly changing market where strategies need to be adapted to changing market conditions, and hosted solutions provide a suitable alternative.”
Single point of access
Te advent of cloud computing has provided FX market participants with a single point of access to liquidity spread across a far wider net of sources than was possible before the advent of the technology. Cloud-based trading solutions and services providers which offer point-to-point connectivity between the
Howard Tolman
“Te cloud makes this huge computational processing capability available to you. It is an incremental cost, removing redundancy of memory,”
providers and users of FX liquidity via global inter- institutional connectivity networks are successfully taking market share away from incumbent banks and custodians.
Joe Conlan, global head of FX sales at FCStone, LLC, a specialist in FX trade execution and Prime Brokerage services based in New York, says growing volumes in FX markets over recent years have made it more important for currency market participants to put in place sophisticated technologies to manage risk on a real-time basis. Daily average FX market turnover reached $4 trillion in April 2010, according to statistics from the Bank of International Settlements (BIS), an organisation which serves central banks in their pursuit of monetary and financial stability based in Basel.
“In the past, you could look at different points of time [when measuring risk]. As volume and volatility has grown, it has become imperative that real-time technologies be available and the cloud allows for an affordable deployment,” says Conlan. “We are utilizing our risk management tools to make sure that our clients do not expose us and themselves to outsized risk.”
april 2012 e-FOREX | 105
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