In the world of stock exchanges, algorithms can be used to trade billions of dollars in nanoseconds. In fact, computers and algorithms execute most of the world’s equity market trades today.
In simple language, this means that the days when traders shouted buy and sell orders on a stock exchange floor are long gone. Algorithmic trading uses computers programmed to follow a defined set of instructions (the algorithm) for placing a trade, in order to generate profits at a speed and frequency impossible for a human trader. In order to do this, highly sophisticated computing equipment is required, both by the stock exchange as well as by the traders who work in this arena.
Anton Jacobsz, managing director at value-added distributor, Networks Unlimited Africa, which distributes Mellanox’ leading range of high-performance, end-to-end interconnect solutions for data centre servers and storage systems throughout Africa, says, “Electronic trading on stock exchanges has been around globally since the 1970s, and embraced by the JSE here in South Africa since 1996. Technological advancements have not only automated trades, they have also brought exceptional speed to trading. And part of this ‘magic’ today lies in using the right Ethernet switches.”
Jacobsz explains that using the right Ethernet switches, coupled with a solid analytics tool, will allow a business to quickly scale to the next level of visibility across its network. Using these switches can result in immediate performance boosts, as seen in low latency trading, where, for example, when executing arbitrage strategies, every millisecond lost could result in hundreds of millions of dollars in lost opportunity.
In a document entitled “Breaking the Low Latency Trading Barrier with Next-Gen Intelligent Interconnect”, Mellanox Technologies and Cumulus join forces to clarify how they can provide the lowest latency over 10 Gbe and faster.
The document notes, “With the advent of algorithmic trading… speed becomes the key differentiator, making it critical to establish the lowest possible latency between processing environments.
The ultimate competitive advantage in businesses that support low latency trading lies in the ability to access the liquidity pool faster than the competition, outperforming competitors during peak periods of intense activity. Low latency trading firms require an agile and high-performing infrastructure that addresses the enormous volumes and surges of high rate data speeds which are typically associated with periods of market volatility. The Mellanox Spectrum-based SN2000 series switch with Cumulus Linux is the industry’s best solution to meet the demanding operational needs of low latency trading firms.”
The joint solution includes hardware and software support, a uniform operating model, and native support for all automation systems, including Ansible, Puppet and Chef.
Additionally, because the messaging nature of financial information exchanges creates ‘bursty’ traffic that can overwhelm network elements, Cumulus Networks and Mellanox Technologies collaborate closely to overcome microburst effects, as follows:
- Spectrum’s superior shared buffer design enables absolute latency fairness with predictable wire speed performance and zero packet loss, combined with unmatched resilience to microbursts.
- Cumulus Networks couples this with unprecedented flexibility in buffer configuration and monitoring to ensure that full system capabilities are available to the consumer.”In financial markets, high-frequency trading (HFT) is a type of algorithmic trading in which traders make money by being the first to respond to information about stocks. When millions of trades are executed every day, the profit margins add up, even on trades that are only a fraction of a cent. It is surprising how the humble Ethernet switch facilitates the world’s fastest stock trades when you go deep inside the system,” concludes Jacobsz.