Can quantitative trading possibly get any faster? During the
last decade, computers and fiber-optic networks have
dramatically reduced the time it takes to execute an order in
the financial markets. Ten years ago that lag was measured in
seconds. During the last few years it was reduced to
milliseconds and then, in some circumstances, to
For a certain breed of high frequency traders, that delay,
or latency, means everything. Low latency traders rely on
direct, ultra-high-speed market connections to profit from
fleeting price discrepancies in the price of a stock or other
asset as it trades in different markets. To make that arbitrage
work, low latency traders have relied on cutting edge
algorithms developed by computer scientists and
super-high-speed fiber networks.
The latest weapon in that arms race may be ultra-fast
microwave radio networks that can outperform even the fastest
fiber-optic circuits. Its a small and highly secretive
niche of the trading world, where traders seldom talk about
their technology or strategies. But one veteran microwave
engineer and entrepreneur agreed to discuss the emerging market
with Institutional Investor.
Over any given distance, radio signals travel
significantly faster through the atmosphere than do optical
signals in fiber. Thats just the physics, but it is the
main reason latency sensitive traders are now interested in
microwave technology, says Gordon Moller, founder and
president of Cielo Networks, a digital microwave system
supplier in the Dallas area.
Moller studied engineering at Annapolis and served in the
Navy as a signals intelligence and electronic warfare officer.
Having worked for over 15 years in several successful microwave
start-ups including Ceragon and Innova, Moller founded Cielo
Networks in 2006. The company is privately held and has no
outside investors. Its clients range from schools and
government agencies to Internet service providers, telecom
carriers and, since last year, trading firms and financial IT
Point-to-point microwave radio technology has been used
worldwide for decades in long-distance, cellular and myriad
private networks, but it has only recently become advantageous
to traders. Microwave radio reliability has steadily improved,
mostly through the commercial application of military
technology. Concurrently, the systems have become much more
flexible and scalable via ever more pervasive microprocessor
integration. Their cost has come down dramatically as well.
The market is dominated by global giants like Ericsson, NEC
and Alcatel Lucent, which primarily serve large markets such as
wireless telecommunications. Numerous medium to smaller players
exist as well, some of whom address niche markets where more
rapid innovation and customization matter most. For Cielo
Networks, the focus has become financial networks.
The demand for microwave technology in the latency
sensitive financial community is barely two years old,
according to Moller. It started when some in the high
frequency trading community realized that a combination of
factors made microwave networks faster than their fiber
equivalents between major trading centers. Radio
signals speed through the atmosphere is very
fast very close to the speed of light in a
vacuum the fastest speed physically achievable. That is
much faster than optical signals in glass fiber-optic cable. It
also helps that point-to-point microwave links connecting
towers and mountaintops between two distant cities can achieve
shorter end-to-end distances than fiber cables, which must
route around terrain and infrastructure obstacles." Says
Moller: Not only is radio inherently faster, but it can
normally connect two distant points with a shorter circuit.
Thats a big double advantage for microwave.
The chief obstacle to microwave technology is the time
required for data signals to travel through the radio equipment
electronics in the series of microwave links. Microwave signals
require line-of-sight transmission and must be regenerated by
radio terminals every 20, 30, 40 or more miles, so Cielo
Networks is modifying software and hardware to reduce the
amount of processing that must be done by such terminals.
Microwave trading networks are not live yet, but they are
under construction, says Larry Tabb, founder of financial
market researcher TABB Group. He says the first trading
application may be faster wireless links between the trading
centers of New York and Chicago. Microwave technology
could reduce the 13-millisecond latency on that route
Moller declined to discuss network speeds or details of how
his equipment performs and reiterated that latency will vary
for different network configurations; however, he says the
appeal of microwave extends well beyond speed. For some
users, fibers higher latency is just fine, and it will
always offer higher bandwidths than microwave, Moller
says. But once fiber is in the ground, it isnt
coming out. Microwave equipment, on the other hand, is
relatively easy to relocate and reuse when facilities move; it
doesnt become a sunk cost like underground fiber cable.
And microwave networks are typically much quicker and less
expensive to deploy than long-haul fiber.
Moller also declined to identify his clients, citing
confidentiality agreements, but did acknowledge it is a
small market. But, he adds, it fits our business
model and strengths very well. The financial market is
still too small to move the dial for large vendors of microwave
technology who sell a broad range of products worldwide to
enormous clients such as wireless phone companies. That leaves
little potential competition for Cielo for now in the low
latency, microwave space, and Moller plans to exploit it.
Were narrowly focused but technically very deep. We
can bring innovations to market pretty quickly.
People tried to use microwave for broadband 20 year
ago, but the technology wasnt there, Tabb says.
That has changed, and a new weapon in the low latency wars
finally may be ready for the market.