High Speed Networks Bumping into Speed of Light

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Joab Jackson from IDG writes that with global networks carrying complex time-sensitive data, the speed of light is actually becoming a significant source of latency. And for high-frequency traders, that latency translates into lost opportunity for profit.

For high frequency trading, light propagation delays are in many cases are the single largest limiting factor to taking advantage of arbitrage opportunities quickly,” said study co-author Alexander Wissner-Gross, who a research affiliate of the MIT Media Laboratory and the founder of the Enernetics research consultancy.

Related research was recently published by MIT in the Physical Review E scientific journal. The study will be the topic of a talk at the High Frequency Trading World conference this week in New York.

“There are many types of transaction that fundamentally depend on sources of information from multiple places around the earth,” said study co-author Cameron Freer, who is a mathematics researcher at the University of Hawaii at Mānoa (and was at MIT when the paper was written). Some finance firms, for instance, may trade against momentary price discrepancies between the London and New York exchanges.

One outcome of the MIT research was a general formula that can derive the best location to locate servers between multiple sources of information. And just as it is in real estate, the name of the game for Wall Street is: Location, Location. Location.