High-frequency traders are using an experimental type of cable to speed up their systems by billionths of a second, the latest move in a technological arms race to execute stock trades as quickly as possible. From a report:
The cable, called hollow-core fiber, is a next-generation version of the fiber-optic cable used to deliver broadband internet to homes and businesses. Made of glass, such cables carry data encoded as beams of light. But instead of being solid, hollow-core fiber is empty inside, with dozens of parallel, air-filled channels narrower than a human hair. Because light travels nearly 50% faster through air than glass, it takes about one-third less time to send data through hollow-core fiber than through the same length of standard fiber. The difference is often just a minuscule fraction of a second. But in high-frequency trading, that can make the difference between profits and losses. HFT firms use sophisticated algorithms and ultrafast data networks to execute rapid-fire trades in stocks, options and futures. Many are secretive about their trading strategies and technology.
Hollow-core fiber is the latest in a series of advances that fast traders have used to try to outrace their competition. A decade ago, a company called Spread Networks spent about $300 million to lay fiber-optic cable in a straight line from Chicago to New York, so traders could send data back and forth along the route in just 13 milliseconds, or thousandths of a second. Within a few years the link was superseded by microwave networks that reduced transmission times along the route to less than nine milliseconds. HFT firms have also used lasers to zip data between the data centers of the New York Stock Exchange and Nasdaq, and they have embedded their algorithms in superfast computer chips. Now, faced with the limits of physics and technology, traders are left fighting over nanoseconds. “The time increments of these improvements have gotten markedly smaller,” said Michael Persico, chief executive of Anova Financial Networks, a technology provider that runs communications networks used by HFT firms. High-frequency trading is controversial, with critics saying that some ultrafast strategies amount to an invisible tax on investors. Industry representatives say such criticism is unfounded.