Technology has completely reshaped the way in which stock markets operate. The days of traders hustling on the floor of the New York City Stock Exchange are long over, and these trades have since been relegated to computers. This shift in trading has introduced new concepts such as high frequency trading, which leverage powerful servers to conduct trades in bulk. But how can Forex traders choose the right servers for this task, and why is server location so important?
What is the Foreign Exchange?
The foreign exchange is perhaps the largest financial market in the world with an astounding value in the trillions. It is a decentralized platform with trades being executed by brokers throughout the world, but these trades tend to be clustered within global financial hubs such as New York City and London. Each country with anything to trade compiles all their trade assets, and sells them in the forex market. The New York Stock exchange, for instance, is one of the major players. The participants in the market from all over the globe are consequently able to buy, sell, transfer, and speculate on the currencies through the Foreign Exchange.
As a trader, speed and efficiency are paramount. That is where a High-frequency trading algorithm comes to play. High speeds characterize this algorithm, in addition to its high turnover rates and high order-to trade ratios that leverage the electronic trading tools. These systems are designed to fire thousands of trades within seconds of one another in an attempt to make a trade at the perfect moment based on market movement.
To up their game, New York City traders aim to maximize their profitability by leveraging low latency connections in conjunction with servers located in close proximity to the Foreign Exchange in order to execute trades with the absolute lowest delay.
Low Latency Connections
The Forex market is an ultra-competitive and fast-moving synchronous environment. Skill and strategy have to come into play to optimize a trade. Previously, all orders sent in and out of the exchange were carried out through a broker, who used phones to make the trades. But through the advent of technology came the internet, which made the process significantly more efficient.
With the internet and automated trading, each firm aims to execute a trade more quickly than others in order to take advantage of trading strategies. And the usage of low latency connections is the way to do just that.
Low latency network connections are optimized to process a high volume of data with the lowest delay between the server sending the data and the exchange receiving the data. This involves using enterprise grade servers, switching, and routing equipment between the server and the public internet like the equipment we use in our New York City data center.
Low latency connectivity also involves partnering with top-tier network carriers and also having direct connections to a large internet exchange. In our case, we achieve this low-latency by connecting directly to the New York Internet Exchange, which is the largest internet exchange in the world.
Why Low Latency Connections Are Important
Low latency connections are critical to Forex trading as it improves market liquidity. This speeds up the process in which the asset or security is bought or sold. It also decreases the bid-ask spread that previously would have been too large. The bid-ask spread is the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept. With a low latency connection, traders are able to take advantage of miniscule changes in price due to the rapid speed in which they can execute trades.
Servers in Close Proximity to NYC Always Dominate
A server located in close proximity to the Foreign Exchange can be one of the best ways to achieve low latency. This close proximity means that the data sent to the Foreign Exchange needs to travel as little distance as possible before it reaches the trading servers. Compared to servers located outside of the city or the state, this can be critical milliseconds which are reduced from the trade execution time.
By using a high-speed trading platform on servers located close to the Foreign Exchange, Forex traders have been able to buy into a stock rally or sell into a slump ahead of the crowd. A faster buy or sell order has also benefited traders by giving them the advantage of gaining a more favorable price. With prices changing exponentially from second to second, this means an investor making the same trade a second later, will buy at a higher value. Or sell at a lower value.
Deploy Your Next Forex Server
If you’re interested in deploying a dedicated server located in the heart of the New York financial hub in order to experience the benefits of ultra-low latency trading, you should consider booking a free server consultation. We will review your unique business requirements and compile a customized server implementation plan to meet your needs and budget.