In these days of high frequency trading (HFT) and algorithmic or “algo” trading, the major players are constantly looking for ways to improve speeds so they can get their orders to the market faster than the next guy. Why? Because evidence suggests that a one millisecond advantage versus the rest of the market can lead to an increase in profits of $100 million per year. So the stakes are indeed high.
UK-based technology vendor and co-location service provider Fixnetix is pushing the boundaries in this respect. The firm recently unveiled an new microchip called i-eXecute, which allows orders to be pushed through in just eight microseconds (that’s eight millionths of a second).
Algo trading these days is all about speed. If you’re a high frequency trader looking for arbitrage opportunities, you need to get your orders into the market faster than your competition, so the new Fixnetix chip will certainly be generating a great deal of interest amongst these trading firms.
Importantly, the chip satisfies the SEC’s new rulings around “naked access” too. Earlier in November 2010, the SEC (Securities and Exchange Commssion) issued a new ruling banning brokers from providing their customers with unfiltered access to the markets. It is now a legal requirement that exchange members apply pre-trade risk controls to every order before those orders hit the markets. The problem is that this pre-trade risk checking can slow orders down, adding latency and high frequency traders always want to keep latency to a minimum.
So the unveiling of the i-eXecute chip (if it does what it says on the tin) is likely to have a big impact because it allows the pre-trade risk controls to be applied to the order flow while actually reducing latency, rather than adding to it.
Fixnetix is not the only vendor to be taking the initiative using hardware, rather than software, as a way to speed up order flow. A number of technology firms are pursuing similar paths. But it seems like FixNetix has the advantage of being first to market with it’s i-eXecute chip, so competitors will now need to play catch-up.
