This article was originally written by Gareth Richardson for Custom Connect.
For FX traders, overcoming slippage is one of the biggest challenges for maintaining potential profitability. Thankfully there is a two-step weapon for combating slippage, a tactic and technology choice that those leading the market have already discovered and implemented.
Without affinity to any provider, we can share the secret that will help control the effects of slippage. The strategy is simple – it is knowledge. The technology is even simpler – ultra-low latency connectivity between trading hubs and local economies.
Once you understand the implications of slippage and possess the necessary market knowledge, you can begin to minimise your loss potential. Trade transaction costs occur due to a gap in time, which if amplified can result in critical losses. This is a particular concern if conducting a substantial amount of trades in a day – a strategy that applies to High Frequency Trading (HFT) and Algorithmic Trading companies.
Thankfully you can reduce this gap, both with high performance global connectivity and a local trading presence.
Making the World Faster and Smaller
Connecting key FX liquidity sites spread across the world in an optimised manner is often easier said than done. Geographical dispersion naturally has an effect on network latency – the speed that data, and thus potential money / profit, is being transferred at.
The more trading locations, data centres, and local access partners you have, the more ‘ears’ you have on the ground. However, the larger the arsenal, the better the network has to be to ensure your trading presence can deliver its maximum return on investment (ROI). There is also the need for an increasing amount of local knowledge from a range of perspectives when you scale across the world – carrier choice, technology and functionality, cost effectiveness and general integration concerns.
If you have a sluggish network – infrastructure with latency in the milliseconds or even slower, full seconds – you will not be able to keep up with the competition, nor keep on top of the vast number of instant trades closing.
Conversely, if you do implement an intelligent network on the ground in emerging FX hubs (Seoul, Moscow and Sao Paulo being current favourites) you should find yourself with a huge advantage over competitors that have overlooked the importance of this local presence.
Furthermore, with the right co-location facilities, (data centres have become the eavesdropping tool of the 21st Century, i.e. having data centre connectivity so close to a local exchange is the equivalent to having a team of specialists in the region), you can receive critical information about trades ahead of everyone else.
Put simply, the knowledge you need to reduce slippage is unlocked through ultra-low latency networking.
Data Transactions Unleashed
Sadly, navigating the marketplace to implement the above connectivity can be troublesome, confusing, expensive (if mistakes are made) and time consuming. The best approach to eradicating potential issues and ensuring you receive the right solution is to illicit the help of a sector specialist that does not favour any carrier, partner, solution provider or its own sales.
Searching out a vendor agnostic, carrier neutral specialist will not only deliver the more suitable network for your objectives, but it will also allow you to consolidate existing solutions, legacy equipment and customer service contracts into a single cost effective hub matching your specific aims, and therefore allow you to focus on your trading strategy, not your IT.
Whatever the connectivity at the heart of your trades – dark fibre, intelligent IP networks, Ethernet or if you desire the very best low-latency option on the market, microwave technology (a highly customisable option that delivers latency ~40% lower than other means) – you can be sure that with a trading telecommunications specialist steering your IT, you will surpass the competition, and most importantly, stay ahead to lead the race.
So, stop risking your profitability, eliminate the belief that slippage is an acceptable cost of international trading and take your company’s destiny into its own hands. After all, as they say knowledge is power. Nowhere is this truer than in the trading community. The only step remaining is making the decision to begin.