Thanks to those that answered my post. It sounds like if you have a poor connection or live far away in other countries you might want to use a co-location. Also if you're doing trades that last under one second (on average) you might want one. I am located in the US and have a decent net connection. My charts are usually 233 tick and above - a lot are 5 minute charts. I don't think I would be a candidate for a colo. I suppose if I started trading live and my fills weren't very good and ended up with high slippage that might be cause to put my trading platform in a colo. Sound about right?
I think people are conflating the terms 'hosting' and 'co-location'. A 'hosted' solution means that your server is near your execution provider. Maybe orders are getting routed over the public internet to your execution provider or maybe there's a private line. This is fairly cheap - like hosting a website. About $100 a month 'Co-location' means your server is in a very specific building - the same one where the exchange matching engine is located. Space is rented by the rack but some providers will lease out slots. You have direct 10GB lines to a ISV - provided execution gateway (in the same building) or you have written directly to the exchange. As you might imagine, this is not cheap. Depending on exchange connectivity the first server can cost $2000 - $8000 per month but if you have a lot of servers the incremental cost gets much lower. For most people a hosted solution is the way to go. It reduces your exposure to power and internet outages and increases your speed a little bit.
So how would one know if they needed to host a machine near their provider? For example, when I trade a futures contract at the end of a bar and I get x amount of ticks slippage, is that reason to want to have a hosted machine? Does it all boil down to crappy entries and exits which result in high slippage? Just making sure I understand so that when I do this live I would be able to tell if I am a candidate for hosting or not. Thanks for all the discussion on this topic, it's been helpful.
Bullshit. Generally hosted means you dont control the computer. Classical colocation means you own or rent a specific computer and put it into a data center. This term is used in way larger environments than exchange trading. Many datacenters offer colocation space only - heck, often not even offering racks, you get the room and co-locate your equipment there. THere is nothing exchange specific to the term. Search for "Server colocation" and you find this is a standard offering in pretty much all data centers.
Start with my original arguments. If you are not in chicago, not on a commercial redundant uplink with a big battery and a diesel generator and confirmed secured routing to the exchange (i.e. not some crappy end user provider that then falls down).... ....then colocating in a data center or renting a server physical or virtual will give you a lot of advantages. Speed is only ONE item. Want to loose money because your provider decides it is time to upgrade routers right now - bad news. With hosting in a data center you just eliminate a lot of technical possible problems, and if it is in chicago you have a good chance to be 1-2 nodes away from the exchange only - which goes down not only to speed but also to less possibly problem sources.
Talk about events. Power just went down. 5 or 7 minutes. Nothing spectacular. All my servers in the basement were up (400 minutes reserve power by battery). Internet was down Go figure - not something I want an algo to have.
Dude, get educated. There's a difference of the terms depending on whether you refer to a general context or a trading context. Anyway, go ahead and "co-locate" your server to Nebraska and tell a bunch of informed traders about it, and we'll see who's the smart ass here. At least you'll give people a good laugh.
There may be, but I colocate, for trading, in chicago and not at the exchange. So, in your eyes I am not colocating? Ever tried logic? Basic school level?