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FX IN THE SPOTLIGHT
Addressing the
need for speed
While technological advances have literally transformed the world of forex trading over the past decade, increasingly the focus is
on shaving fractions of a second off execution times to make trading faster and more efficient than was ever possible before,
writes Tim Håman, CEO of Fair Trading Technology.
When you talk about technology in the
foreign exchange market, at the end of the
day, it all comes down to milliseconds.
16 Significant resources are being spent on
reducing the amount of time it takes traders
to reach the market, all because of
technologies that have completely
transformed the world of forex trading over
the past decade. ‘Time is money’ may be a bit
of a cliché, but increasingly this time is
measured in fractions of a second that make
the blink of an eye seem like a long time. As
this current decade progresses, the goal is to
reduce this time even further, to the point
that speed is no longer an issue at all
and ‘slippage’ becomes a virtually
meaningless term.
To say that technology has changed forex
trading would be a gross understatement. It
was only ten or 15 years ago that currency
trading was the exclusive domain of big
players, where $100 million was the minimum
to even be able to enter the market. As
financial barriers to entry lowered,
technology also started to create a new
segment of the forex market: retail trading.
While it began in the second half of the
1990s, it wasn't until the early 2000s that
software platforms were developed that
started to make these markets accessible to a
wider trading community, with the biggest
breakthrough coming with the 2002
FX-MM NOVEMBER ISSUE 2010
To say that technology has
changed forex trading would be a
gross understatement. It was only
ten or 15 years ago that currency
trading was the exclusive domain
of big players, where $100
million was the minimum to even
be able to enter the market.
introduction of MetaQuote's MetaTrader
platform. As such, automated trading was
brought to the retail sector. With the release
of MetaTrader 4 in 2005, more and more of
the market moved to digital transactions,
requiring less need for human intervention.
This was the real birth of the retail market
and the cutting edge of major changes in the
market at the hands of technology.
With this new base for trading
established, the biggest advances that
technology can now offer to forex trading are
in the area of speed - how quickly it can
allow a trader to get to the market.
As any trader can attest, speed equals
advantage, which is increasingly where every
millisecond counts.
If we look to the fully digital stock
market though, even milliseconds are
becoming irrelevant. Trade times are now
measured in microseconds. In early October,
the London Stock Exchange set a new bar for
speed, announcing that trades on its
Turquoise trading platform take place in just
126 microseconds. To put that in perspective,
a human eye takes on average 300
milliseconds to blink. In that same amount
of time, the LSE's platform can complete
almost 2,400 trades.
Those kinds of speeds are not yet
possible in the world of forex trading, if for
no other reason than the layers of
participants required to complete a trade.
Currently, for example, a typical forex trade
could go from the trader's terminal to a
MetaTrader server, then to a bridge and to an
ECN before reaching the market, where it is
executed and then returns the same route in
reverse. The entire process can take 600 or
700 milliseconds. While that is by no means
slow, the goal over the next five to ten years
is to significantly reduce this amount of time,
bringing it down to micro- or even
nanoseconds. The question is, ‘how do we
get there?’
In the past, the biggest leaps in
technology came with the development of
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increasingly powerful and more efficient
processors. To this day, the financial market
is one of the key sectors targeted by chip
manufacturers when developing the next
generations of newer, faster processors. But
in reality, the speed of development across
the whole technology industry is starting to
slow. Moore's law, which states that the
computing power of processors will roughly
double every 18 months, is still applicable,
but we are starting to get to the point where
the timeframe is beginning to be stretched –
even by Moore’s own admission. Raw power
in a single processor, while still important,
is being increasingly replaced by multiple
cores within the CPU, substituting brute
strength with an ability to execute more
tasks at once.
Even with fast processors, unless the
operating system and trading platforms are
optimised to fully take advantage of them,
the speed and efficiency of the whole system
will be limited. MetaTrader 4, while
revolutionary when it came out, is a single-
thread application, meaning that it is only
capable of processing one order at a time.
You can have as many processor cores as you
can afford, but MetaTrader 4 is programmed
FX IN THE SPOTLIGHT
to only use one of them. If there are too
many orders, a queue will form, delaying
each one and increasing slippage. Things are
changing with MetaTrader 5, which will bring
a multithread server solution, able to deal
with many orders at the same time instead of
one-by-one. This itself could significantly
improve the time it takes to complete
a trade.
Another key to improving both speed and
efficiency is to move as much of the trade
into cloud computing as possible.
Even with fast processors, unless
the operating system and trading
platforms are optimised to fully
take advantage of them, the
speed and efficiency of the whole
system will be limited.
17
For example, instead of running a bridge on
one server and a MetaTrader server on a
separate one, both can be operated on a
virtual server, meaning both are housed
inside the same server, being executed by the
same CPU. So when one server has to talk to
the other, it can be extremely fast since the
same CPU is computing for both, accessing
the same memory and disk. There is no need
to go to the network, let alone a second
server. Milliseconds can therefore be reduced
to microseconds. Overall efficiency is also
greatly increased, as the server is able to use
around 80% of its capacity at any one time
instead of the typical 5-15% seen in
standard, stand-alone servers.
Operating in tandem, the increase in
computing power, optimised platforms and
more efficient grids of cloud computing will
significantly reduce the amount of time it
takes to execute a trade in the coming years,
bringing a trader to the market faster with
less risk of loss due to slippage. It's not hard
to imagine that at some point in the future,
the race for speed will end - when the time it
takes to execute a trade is no longer limited
by technology, only by physics and the speed
of light - but we're not there…yet. 
FX-MM NOVEMBER ISSUE 2010