Pete’s Blog: Too Early To Be Skeptical
In his blog last week, Andrew said he’s skeptical that advantages from investing in low latency infrastructure will be anything other than short lived.
I tend to share his opinion that low latency is passing through, though I am less of a skeptic (Andrew’s turning French). To me, the current focus on low latency is simply the way that Wall Street works, such that it does. There’s an opportunity to be had – to rise above the crowd, to make money – and so the top tier of the financial markets are all over it, doing just that (or at least they think they are).
I am not sure whether Andrew has in his mind a timeframe for ‘short lived’ but I’d say there is still some ways to go – years, not months. We are still seeing innovation in the low latency space at the base technology level – as witnessed by the rollout of new direct feeds, more emphasis on proximity and the embryonic work on hardware acceleration.
Moreover, the drivers for low latency are only just getting started. Data volumes are still going through the roof, the impact of RegNMS and MiFID is still to be felt, and the adoption of algorithmic trading by new markets is only just beginning. Plus, we’ve yet to see the almost certain adoption of low latency technology by the second tier players. For technology vendors in this space, the future is bright so long as you know which way is up.
All the above drivers need to cycle through before low latency gets relegated to passé and some new tech craze (web 2.0 maybe) gets the froth going in some new area. Will this website still be around in five years? I doubt it. But – just as with the space it covers – we’re just getting started. Feel free to reply to this post and tell us what you think, and what you want from us.
Until next time … here’s some good music.
May 8th, 2007 at 9:19 pm
A few comments here
1) Love wears coke bottle glasses
No question, many practitioners misdirect their resources in pursuit of speed. No doubt there’s a healthy amount of groping in the dark and lemming-like activity in the market along the way. But innovation isn’t linear, is it? You need outliers, stray bullets, and ugly stepchildren- there are no shortcuts to glory. Some will take caution before they leap, but others will pounce at the mere whiff of latency reduction in a single system component staring them in the eye- oblivious to the component behind them possessing 10 times the potential for acceleration. Yet in the end it happens and God bless the innovators nonetheless. It took a few Optimarks to get a Liquidnet, no?
2) Yes, we’re asymptoting
Andrew’s dead right: we’re splitting hairs on an ever shallower path towards near zero latency at times. But…
3) Sometimes it ain’t the results that matter as much as the process
Sure it’s nice to produce some sexy numbers, and let’s face it we all bear guilt (as you’ve admirably admitted Andrew) in reinforcing the notion that simple, one dimensional statistics can convey a rich and meaningful story. But let’s not toss that baby with the bathwater- let’s instead consider the resources it takes to tune a platform, and how customers benefit from the fruits of that journey. Bugs are fixed, best practices are identified, new ideas are generated. It’s easy to underestimate the value here, but take a closer look and you’ll see how real the benefits are for customers who want a solution that’s been put through its paces before they attempt to implement it nakedly themselves.
4) Milk is tasty right up to the Sell by Date
Lot’s of things have shelf life. Heck Angie Harmon will be beyond her prime one day, but need we dwell on that now? ROI calculations have time horizons and the market is smart enough to know they have a limited window of opportunity to reap the rewards of their investments in low latency investments. The same is true of the algorithms they employ themselves- Jim Simons of RenTech says he couldn’t make money off the algos he used just 2 years ago. That hasn’t stopped him from crushing the market year after year though apparently. Carpe diem! or horo…or minuo….
Here’s to results. Here’s to the quest. Here’s to success born from them both, warts and all.