Getting up to speed: Shortwave Chicago-London link clocks under 25ms

If you thought the low-latency race couldn’t go any lower, think again. Trading firms, exchange operators, and infrastructure providers are still competing hard over fractional performance increments that will allow them to gain an edge by being able to receive and process market data or send trade signals or order messages faster than their rivals.

For example, Intercontinental Exchange recently rolled out a Transatlantic data service offering ultra-low latency data between the US and Europe. The service combines the current wireless services of its ICE Global Network with low-latency fiber to create a market data offering between Aurora, Illinois, and Europe.

But, some firms see value in even lower latencies that leverage shortwave radio frequencies, also called high-frequency (HF) radio, or skywaves. Although HF radio has been around for a long time, often used in military communications, air traffic control, and amateur radio, advances in hardware and error correction now make it a realistic option for trading firms to transmit data to support electronic trading.

While arguably there are more limitations than benefits to using shortwave radio technology, there’s no denying that trading firms are using it. (Click here to read more). There is tangible data to distinguish shortwave trading based on reaction times in trades on the CME and Eurex, for example, recorded by Deutsche Börse’s A7 Analytics Platform, according to a LinkedIn post by Stefan Schlamp, head of quantitative analytics at Deutsche Börse.

Raft Technologies, a Tel Aviv-based shortwave service provider founded in 2013, recently engaged the Securities Technology Analysis Center (Stac) to audit the latency and throughput of two of its HF links from Chicago to London—Raft HF Ultra Link and Raft HF Super Link. The report, which Stac published on its website earlier this month, is the first to document the performance of an independently audited HF link for sending cross-exchange signals.

To test high-frequency radio’s potential to reduce long-haul latency, Stac devised a series of latency and throughput tests for HF radio with input from financial firms, which emulate multiple usage patterns of trading firms. The nature of HF radio links is that each link is unidirectional, and for the purposes of the report, Stac tested the data originating in the CyrusOne Aurora facility (formerly CME’s own facility, where it still hosts its market technology) and terminating in Equinix’s LD4 London facility.

For the purposes of the tests, the fiber on the sending and receiving server ports were tapped just outside the server, and each packet was timestamped and captured for analysis, using sending and receiving servers and network capture infrastructure provided and controlled by Stac.

According to the report, during service level agreement (SLA) hours, from 12:00 pm UTC (Coordinated Universal Time) to 23:59 UTC, the mean latency of Raft’s HF Ultra Link from Chicago to London was 24.8 milliseconds. The daily adjusted “goodput”—which measures how fast and accurately useful data traveled from one point to another—was between 77% and 94%, and the link’s uptime was 98%, while usable time was 93%.

Comparatively, for Raft’s HF Super Link, during SLA hours, the mean latency was 27.7 milliseconds. The daily adjusted goodput was between 92% and 96%, and the link’s uptime was 98%, while usable time was 94%.

Stac president Peter Nabicht, tells WatersTechnology that Raft was looking for an independent party to confirm its KPIs and provide financial firms with an impartial third-party observer view of its capabilities.

One point that the report stresses is that HF radio links are not deterministic. This is unlike fiber—and, to a great extent, microwave, too—says Lior Katz, vice president of marketing and business development at Raft.

“This means that what you’re sending, you’re not necessarily getting 100% of that on the other end. That’s why there’s an emphasis on that in the report; getting a detailed performance breakdown is useful for appreciating the concept of an undeterministic data link,” he says.

Katz adds that HF radio links are statistical, like most trading strategies. “Your objective is to win more times than you lose, but sometimes you lose because your strategies can’t win all the time,” he says.

A balancing act

Most of the time, it’s about finding a balance of determinism, latency, and goodput that trading firms deem acceptable or desirable.

Stac’s Nabicht says that while trading firms typically like determinism, they also like the lowest latency they can find, which is why it was important for the industry benchmarking body to quantify the latencies, goodput and the ranges and provide that information to financial firms.

“If they like the latency enough, they will figure out ways to incorporate it that maybe don’t require as much determinism as they’re used to in other communication mediums. And in doing that, they just want to understand the tradeoffs they’re in and the ranges of what they find acceptable or not—and that’s where having this data is really important,” he says.

From the feedback Stac has received from firms before and after the audit, shortwave links are best suited to traders with low-latency needs, which may extend beyond high-frequency trading (HFT) firms.

“I think everybody uses a different definition of HFT,” Nabicht says. “I think the important thing is they’re primarily serving traders with low-latency needs. Those trading firms often participate in high-frequency trading, but that doesn’t mean they exclusively trade with high frequency.”

Nabicht, who has previous experience working at high-frequency trading firms, says that only about half the trades he had worked on were traded at high frequency, but all of them required low latency.

In particular to the Chicago-London link, there are a few instruments that could be interesting enough to warrant using an HF radio link. These include the US treasuries futures market, which Nabicht says is more liquid and more active than the treasuries cash market. Then, there’s also the S&P E-mini futures contracts and FX futures.

I think everybody uses a different definition of HFT. I think the important thing is they’re primarily serving traders with low-latency needs.

Peter Nabicht, Stac

“There’s also gold futures and others, but let’s talk about the ones that require really low latency: treasuries,” he says. “Those markets very much can move in unison or against, depending on the current macro environment in other markets around the world.”

One example is the European bond market in Germany: the bund, bobl, and schatz, which are long-term, medium-term, and short-term German government debt securities. If the markets are moving in lockstep during current conditions, and if there’s a multiple price move in US treasuries, then the bund, bobl, and schatz might move similarly.

“If I know that there’s a multiple-tick move in treasuries, I’d want to send that to my traders in Germany as quickly as possible for two reasons,” Nabicht says. “One, if I need to get position in the direction the market is moving, I need to do it before the market moves away from me—maybe that’s to take risk, or maybe it’s to hedge risk. And the second is, if it’s been indicated that the market is moving, I might want to cancel my orders that might be resting into that market move, and for that, trade latency is of critical importance.”

It takes ‘GUTS’

For Raft, Katz says it currently has fewer than 10 clients using its ultra speed and super speed Chicago-to-London links. Its SLA commits to certain performance levels for the two links during the 12 hours covered by the SLA. The non-SLA hours are extra times it can provide the link, but it doesn’t commit to SLA figures in those hours as it is considered a “best effort”, as it is more challenging to achieve a specific result.

This is one of the challenges when using shortwave or HF radio links. Perfect conditions for it to work best would be if there’s daylight in both the transmit and receive sites. During other times, ionospheric conditions—which is one reason for the Northern Lights phenomena—can cause interference.

“We started the service with two hours, then four hours, then six hours, and then eight hours, and now we’re at 12 hours SLA window and operating the links 24 hours a day,” Katz says. “That’s very significant, in terms of extending the time we’re providing SLA times.”

The CEO of an Asia-based proprietary trading firm says that to use shortwave, it would have to be “very straightforward and clear cut,” and would need to enable firms to generate enough signals for it to be meaningful, as using shortwave can be expensive.

“The race to be as fast as possible, whether it’s beaming a signal across the core of the earth, or using some crazy physics, or whatever, at some point, it becomes not so interesting because it’s just pure speed, and the value of that pure speed, it’s not the most interesting signal. That said, if I could take it and use it, I would, but we also have to consider the level of investment required and having people that understand how to use that signal,” the CEO says.

In response, Raft’s Katz says that to use the Chicago-London link, trading firms need only to cross-connect to Raft’s switches at both co-location sites and use Raft’s API to send their signals, which usually takes a day or two to get working.

We started the service with two hours, then four hours, then six hours, and then eight hours, and now we’re at 12 hours SLA window and operating the links 24 hours a day.

Lior Katz, Raft Technologies

He agrees that creating meaningful signals requires attention and tests, first using historical data and then using real-time data. Raft accommodates a trial period to support that.

“Faster signals can create significant value for various trading strategies—getting new opportunities, reducing risk (as in shorter exposure time or staying clear of events), or increasing prediction quality. We see teams use different signal intensities, as Stac also implemented in their testing profiles. With fewer signals sent, their meaning is likely greater,” he says.

As the availability of latency tiers increases, it will enable HF radio to fit broader trading use cases, perhaps beyond the stereotypical HFTs. Among its efforts to educate the market on the performance of HF radio, Raft has a GUTS Feeling program—which stands for “Getting Up To Speed”—that helps firms familiarize themselves with HF radio. The program provides information, as well as time-series files with historical data for back testing.

Katz says this means Raft records a day of activity over a link and provides all the information that went back and forth on the link, or from one side to the other side of the link.

“It’s easy for trading companies to take this file into their simulation tools to simulate the performance of the undeterministic HF radio link,” he says. “This is all an attempt to educate the market to make more trading teams curious and interested in trialing HF radio.”