Within the trading community, much is spoken about the proprietary technology harnessed by leading HFT firms and market making companies to outperform their competitors.
From the microwave tower links sending network data 130M mph faster than fibre to accelerated hardware such as FPGAs utilized to automatically execute trades more quickly – competitive edge is everything in the world of high-frequency trading.
Undoubtedly, in this historically low period of volatility and consolidation, with many of the smaller firms being acquired or simply shutting shop, it makes for an interesting spectator sport to see what new innovation or technological development can be harnessed to stay one step ahead of the market.
According to my own research, a new trend which seems to be gaining traction in the technical arena of some of these companies is the adoption of an internal PAAS (platform as a service) type infrastructure and deployment environment.
To some, this may not come as a surprise. And why not?
In the wider technology industry, a plethora of new (and successful) providers and some of the not-so-new players have joined the established public clouds in offering these types of services. It’s no surprise that Gartner estimates the PAAS market delivered by public providers will be worth $56.1bn by 2020.
So why would trading firms want to invest in creating their own PAAS (and not use a public provider)?
Firstly, as Larry Ellison explained when referring to Oracle’s PAAS offering at their recent Cloud Event,
“By automating we reduce the amount of labour needed and also reduce the amount of human error”.
It’s true, these types of platform offer greater opportunities for more automation, reducing manual labour, which in turn reduces long-term costs. By enabling the ‘platform’ to handle the infrastructure and operations, engineers can concentrate on the development of applications/software.
Furthermore, it can also increase the speed of development and deployment, by having developer tools ready and available in the platform and CI/CD built in. This results in quicker time to market and fewer mistakes in the production environment – again, reducing cost.
How does this relate to trading firms?
In the context of current market conditions (lower volatility = lower profitability), a solution that enables you to reduce operational overheads (and bottom line), whilst decreasing time to market and implementation of your newest strategies is bound to become another golden egg in their basket – one to be explored fully.
And what about Public Clouds?
To understand why HFTs might not want to host their platform on the public cloud, one can assume two things;
- Firstly, in this highly competitive market, it’s just too great a risk to put your production systems into the hands of another business, in case of availability failure, downtime or even just security.
- Additionally, with the existing resources they have readily available, having already invested in physical infrastructure/hardware, it’s quite likely this could be repurposed to host the platform quite easily.
So, is this D-I-Y method successful?
To further my understanding of this area of growth, the decisions behind adoption and the impact it can have, I reached out to my network of engineers in this space for their opinions on the matter. Their experience spans proprietary trading firms to designated market makers.
Watch this space to see what they have to say…