Geeky, but very interesting article about improvements in trading execution:
"Not all trading takes place in New York. By historical accident, derivatives such as futures and options are mostly traded on the Chicago Mercantile Exchange, 720 miles away. So a few years ago, a company called Spread Networks began quietly buying up rights-of-way for a route that would lop about 140 miles off the shortest fiber-optic cable distance between the Chicago Merc and the communications hub of Carteret, New Jersey, the primary data center for Nasdaq. Existing networks tend to follow railroad lines and were designed to serve population centers, not to provide a point-to-point link for traders. Instead of dipping south toward Philadelphia, Spread’s route heads northwest through central Pennsylvania and then due west to Cleveland. Latency is typically measured in round-trip times (i.e., an order and a confirmation); the shortest cable route before Spread lit up its network in 2010 clocked a round-trip time of 14.5 milliseconds, according to Spread executives, but capacity was inadequate, so most customers had to settle for 15.9 milliseconds. Spread cut that to as little as 13.1 milliseconds for its premium “dark fiber” service, a connection that doesn’t have to be shared with other customers. Prices are a closely guarded secret in this world, although the consensus estimate among traders is “plenty.”
Spread quickly began signing up customers, but by the spring of 2012, there was a faster competitor on the horizon. Because of some complicated physics, the speed of light through any medium is inversely proportionate to the medium’s index of refraction—so signals travel about 200,000 kilometers per second through fiber-optic cable, compared with 300,000 through the atmosphere. The fastest communication between New York and Chicago would be line-of-sight through the air, which requires a chain of microwave relay towers. Tradeworx is building such a network, as is McKay Brothers, a California firm that hopes its system will be the fastest, with a round-trip latency of less than 9 milliseconds. Its route, cofounder Bob Meade boasts, uses the smallest possible number of towers, 20, and deviates from a perfect geodesic (more poetically known as a “great circle,” the shortest line between two points along a planet’s surface) by just 4 miles. It includes roughly another 2 miles of wiring in the towers themselves, connecting the dish antennas hundreds of feet in the air with amplifiers on the ground.
The downside is that microwaves in the 11-gigahertz band can be interrupted by rainstorms or certain atmospheric conditions that duct the signal away from the receiving dish. CEO David Barksdale of Spread Networks, which claims “five nines”—99.999 percent reliability—for its fiber-optic link, says he’s not worried about microwave competition: “People have been talking about building low-latency wireless networks for years. We don’t believe long-haul microwave is a suitable technology for sophisticated trading applications, due to certain key limitations.” (He declined to specify what those were.) But Meade, a former Harvard physicist and quant, is convinced that speed, more than reliability, is the key. If your link is only 99 percent reliable, you don’t make money 1 percent of the time; if it’s slower than the competition, you don’t make money 100 percent of the time."