FOREX TECHNOLOGY
If you really think you can differentiate yourself then perhaps consider it but we see some of our client’s capabilities - Aphelion for example - and they have a level of expertise that I would consider difficult to replicate.”
“My personal feeling is that so much of the high performance piece is done so well by third parties that you have to look very closely at how you think you are going to differentiate and if you maintain it as well,” he adds. “Commercially there are trade-offs but there are some advantages in having a model that allows you to select best-of-breed in a more OPEX model rather than a people and capital intensive model.”
Similar concerns exist for firms who wish to develop their own infrastructure, says Divisa’s Dennison. “Te issues are many but cost, functionality, reliability are just of a few of the challenges a firm must overcome in order to develop a viable solution,” he says. “Quality assurance testing will require months and months of testing of an Alpha offering before a Beta version can be rolled out to clients for testing. Te benefits may be minimal compared to the many issues a firm will face trying to develop and implement this new technology.”
Beyond the speed limit
Although speed is crucial for many high performance FX trading firms it isn’t so important for everyone. Banks and other traders typically refresh their network to reduce latency and to reduce risk, usually with a mixture of the two, based on the firm’s view of their optimal trading infrastructure.
“Speaking to the sell-side institutions, FX desks as well as boutique trading houses, we find they like to connect to the ecosystem from a single data centre. By using a data centre like ours where you have access to some interbank platforms as well the bank platforms, it makes it easier from a connectivity perspective,” says ter Hoeven.
“Where there used to be a clear-cut, speed-based approach to trading for example setting up a trading algorithm in a stock exchange’s data centre, that model is no longer viable,” he contends.
“Firms made a lot of money that way; if you were the fastest and the first to put that in place you could win,” he says. “In today’s highly competitive market
90 | july 2012 e-FOREX
the complexity of trading strategies has increased. You often have to work across exchanges, asset classes and possibly even multiple countries. Bring that together with both market data and the execution position and trading infrastructures become so much more complicated.”
Where in the past he says firms would invest in any venue that they could execute on and create the fastest solution, that is only supported by 5-10% of the market in his view, with the rest taking a more balanced approach with an acceptable, although often low, latency to reduce risk in trading infrastructure rather than beat the competition on speed.
He adds, “Some people require low latency some don’t. I spoke to a large Nordic bank recently that still has more than ten milliseconds round-trip delay, but they didn’t see that latency as particularly harmful for their trades. Latency is not always the driver for this, rearranging the network might be for achieving a reduction of costs, or to reduce the complexity, which maybe the biggest advantage of a connectivity hub.”
Rutger ter Hoeven
“Some people require low latency some don’t. I spoke to a large Nordic bank recently that still has more than ten milliseconds round-trip delay, but they didn’t see that latency as particularly harmful for their trades.”
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