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Gaining that imperative advantage over other market participants by reducing the time it takes to execute trades is critical nowadays, especially at a time in which the advances in technology which connects the entire electronic trading infrastructure over recent times have reduced global latency down to nanoseconds.
The world is shrinking, and indeed global connectivity is a major factor. LeapRate spoke to Gordon McArthur, CEO and founder of VPS provider Beeks FX to discuss colocation, how to get the most effective execution for retail traders, and to dispel the myth that flash crash trader Navinder Singh Sarao had a geographical advantage.
“There are maybe 3 or 4 main areas I think specialist VPS providers will remain important, and we have not seen any slow down in growth in recent times. It is encouraging that platform providers (or certain ones) are now undertsanding the message we have been delivering to the market for the last 4 years” began Mr. McArthur.
“Latency for retail forex trading is improtant, and people should not be running automated strategies from home computers and sending orders around the world” he continued.
“So why are specialists still important?” asked Mr. McArthur.
In explaining this conundrum, Mr. McArthur expressed to LeapRate: “There are three or four areas which need discussing here.Very few brokers have a single platform strategy and I think platform diversification is speeding up and gaining ground certainly with the larger forex brokers.”
“Also retail clients are more and more looking at cross asset class trading. That means multiple platforms, on a low latency VPS that is all controlled through single interface. The second matter is latency. At Beeks, our USP has been for years to have direct connections to exchanges, bridge providers, brokers and matching engines, and that means we do not have to route client trades through the internet” he explained.
“Even sending orders from one part of NY4 to the other via the internet, we have seen huge latency spikes to 20 m/s on regular basis. Via direct connectivity, we can give clients a service level agreement of less than 1 m/s.”
The subject of flash crash trader Navinder Singh Sarao and his citation by the US Commodity Futures Trading Commission (CFTC) for spoofing and layering several large orders on North American futures exchanges has attracted the attention of the media recently. Mr. Sarao managed to profit £27 million by engaging in such tactics, from the very ordinary surroundings of his house in Hounslow, West London.
Speculation amassed that he may well have had a latency advantage due to his proximity to the Equinix LD4 server, which carries a vast amount of global financial markets connectivity to major exchanges.
Did flash crash trader Navinder Singh Sarao really have a geographical advantage?… No!
Mr. McArthur elaborated on this, setting straight any preconceptions that Mr. Sarao’s location was his advantage. “Mr. Sarao was trading the futures markets in the United States. He would have been in NY4 or Chicago. I still struggle to believe that story…one guy!”
“I do not agree that he had any geographical advantage, as he was trading the US exchanges and futures, therefore was using US infrastructure. He would have had servers attached to an exchange” stated Mr. McArthur.
“There are other things that are important, and this is where story falls apart for me. Front running or spoofing of orders is not new and anyone who has read Flash Boys understands the values and sums of money invloved here, so a single retail client with all be it a large account can cause that much damage, I am not sure how that can or should be possible.”
Moving back to aspects relating to VPS, Mr. McArthur began to explain why a specialist system is important.
“It is all about support. If a client VPS gets into trouble, then the trader is potentially losing money for every minute it is down. Going to generic VPS hosts or even platform providers simply not set up to give knowledgeable real time support 24/5 across the world on traidng platforms is risky” he explained.
Specialist support and VPS location are key
“We have tens of thousands end point terminals and a support team moulded to look after that” stated Mr. McArthur. “Trading specilaists do not support web sites or have 90% of their staff building trading platform code.”
“90% of our staff are customer facing (virtually) if clients have issues, all done via real time chat/tickets via our site. Location also vital, and we will be in next few months offering Equinix Facilities, LD4/NY4/CH1/CH2/TY3/FR2 as well as direct CME access in the CME datacenter.”
Mr. McArthur concluded by explaining that “Most clients do not pay to use our service at all. It is effectively free to the end user given that certain low parameters are met. Brokers pay for it and of the top 10 western brokers globally we have agreements with all of them to provide a VPS for clients free of charge and over 50 brokers in total who will sponsor a Beeks VPS for a client, so therefore providing best of breed technology and lowest latency possible supported by a best in class support team at no cost to the end user. We are giving it away!”