The practice of co-location, whereby firms deploying extremely high-speed trading strategies locate their server next to that of the exchange or trading venue, is nothing new. But according to research published last month, high frequency trading firms looking to shave every last micro-second off their trading speed ought to co-locate their servers in the wastes of the Antarctic or the middle of the Atlantic ocean.
The calculation for understanding optimal server locations and a map of where to find them (small circles)
The research paper Relativistic Statistical Arbitrage, which was published in science journal the Physical Review in November, explores how high-frequency trading firms -- which deploy trading strategies that are dependent on routing trading information around the world and across multiple exchanges and trading venues at sub-micro second speeds -- can optimise their trading infrastructure and trade even faster.
In the paper, the authors provide a general formula firms can use to calculate the optimum global location for servers hosting high-frequency trading type programs to sit in between multiple exchanges - they are identified by the small, blue circles on the graph, while the world's biggest exchanges are identified by the large, red circles.
The authors Alex Wissner-Gross and Cameron Freer, both research affiliates at the Massachusetts Institute of Technology, used the formula to triangulate the best possible locations in the world for locating servers across some 52 exchanges globally.
According to the results, high frequency trading firms should think about locating their servers not only in Europe's popular hotspots, such as Basildon and Brick Lane, but in the North Pole, the Atlantic and Pacific Oceans, and the middle of the Australian desert, among others (see map).
The research could give rise to new data centre hot spots, say the authors. If this sounds broadly preposterous, think again: in 2008, Google filed a patent for a floating offshore data centre, while 2007 technology firm Sun Microsystems unveiled plans to build a data centre in an abandoned coal mine.
The topic and the paper are the subject of discussion at the New York High Frequency Trading World conference being held this week.