As milliseconds give way to microseconds and microseconds are replaced by nanoseconds, a key weapon in the back-room war to win traders’ business is co-location— moving your server as close as possible to an exchange’s matching engine.
In recent years there has been a surge in demand for co-location. In 2008— and despite the onset of the recession — demand grew by 14%, according to Dan Golding of the analysts 451 Group. Fascinatingly, supply only rose by 6%.
Geography — here read proximity — is the key to speed. Global head of enterprise information at Thomson Reuters Mike Powell compares co-location to the real estate business: “It’s similar in that it’s all about location, location, location. The winner is the person whose property is closest to the beach!”
The time it takes for your trade to go through a few hundred metres of wires versus kilometres of wires may be...