“Summer of Speed” – The Need For Low Latency In Automated, Real-Time Trading

By Nicole Hemsoth

August 9, 2011

Fujitsu and Solarflare share the observation that the rapid expansion of automated and algorithmic trading has increased the critical role of network and server technology in market trading, first in the requirement for low latency and second in the need for high throughput in order to process the high volume of transactions.  Given the critical demand for information technology, private and public companies that are active in electronic markets continue to invest in their LAN and WAN networks and in the server infrastructure that carries market data and trading information.

In some trading markets, firms can profit from less than one microsecond of advantage over competitors, which drives them to search for sub- microsecond optimizations in their trading systems.  The spread of automated trading across geographies and asset classes, and the resulting imperative to exploit arbitrage opportunities based on latency, has increased the focus on if not created an obsession with latency.

With this combination of forces, technologists, IT and data center managers in the financial services sector are constantly evaluating new technologies that can optimize performance. One layer of the technology stack that receives continuous scrutiny is messaging, i.e., the transmission of information from one process to another, over networks with specialized home-grown or commercial messaging middleware.

The ability to handle predictably the rapid growth of data traffic in the capital markets continues to be a major concern. As markets become more volatile, large volumes of traffic can overwhelm systems, increase latency unpredictably, and throw off application algorithms. Within limits, some algorithmic trading applications are more sensitive to the predictability of latency than they are to the mean latency. Therefore it is very important for the network solution stack to perform not just with low latency but with bounded, predictable latency. Fujitsu and Solarflare demonstrate, in a newly released network performance white paper, that because of its low and predictable latency, a UDP multicast network built with 10 Gigabit Ethernet (10GigE) can become the foundation of messaging systems used in the financial markets.

FINANCIAL SERVICES AND OTHER APPLICATIONS THAT CAN TAKE ADVANTAGE OF LOW-LATENCY UDP MULTICAST

Messaging middleware applications were named above as one key financial services application that produce and consume large amounts of multicast data which can take advantage of low-latency UDP multicast. Other applications in the financial services industry that can take advantage of low-latency UDP multicast data include:

  • Market data feed handler software that takes as input multicast data feeds and uses multicasting as the distribution mechanism
  • Caching/data distribution applications that use multicast for cache creation or to maintain data state
  • Any application that makes use of multicast and requires high packets per second (pps) rates, low data distribution latency, low CPU utilization, and increased application scalability

CLOUD NETWORKING AND BROADER MARKET IMPLICATIONS OF LOW LATENCY TO SUPPORT REAL-TIME APPLICATIONS

As stated above, the low-latency UDP multicast solution provided by Fujitsu switches and Solarflare server adapters can provide compelling benefit to any application that depends on multicast traffic where additional requirements exist for high throughput, low-latency data distribution, low CPU utilization, and increased application scalability. Typical applications that benefit from lower latency include medical imaging, radar and other data acquisition systems, and seismic image processing in oil and gas exploration. Yet moving forward, cloud networking is a market segment where Fujitsu and Solareflare note the requirements for throughput, low latency and real time application performance will also develop. The increasing deployment and build out of both public and private clouds will drive the increased adoption of social networking and Web 2.0 applications. These cloud applications will incorporate real-time media and video distribution and will need lower latency applications for both business-to-consumer (B2C) and business-to-business (B2B) needs. Perhaps more fundamentally, the need for real-time, high-speed analytics and search of large and often unstructured data sets will create demand for low latency and real time application response.

As leaders in the low-latency networking world, Fujitsu and Solarflare co-commissioned a series of network performance tests that took a deep dive into these challenging issues. We welcome you to take a few minutes to download and read the results.

To download the full Solarflare & Fujitsu XG 2600 Network Performance Test, please visit:

http://www.fujitsu.com/downloads/COMP/ffna/ethernet/Solarflare_Low-Latency_TestReport.pdf

or

http://www.solarflare.com/Content/userfiles/documents/Solarflare_Fujitsu_Low-Latency_TestReport.pdf

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