High-Speed Data Feed

What Is a High-Speed Data Feed?

High-speed data feeds send data, for example, price statements and yields without delays and are utilized in high-frequency trading (HFT) for real-time data analysis.

These data feeds might be sent over fiber optic cable, microwave frequency broadcast, or through co-area at exchange server destinations. Since HFT profitability relies upon low latency, these and other financial firms have all in all invested billions of dollars in building redesigned high-speed data feeds.

How a High-Speed Data Feed Works

High-speed data feeds give mechanized algorithmic traders with quicker more dependable data. Since HFT is driven by quicker access to data, there has been a mechanical arms race, as data feeds and transactions approach the speed of light. HFT makes natural monopolies in market data, which pundits say has given high-frequency traders an unfair advantage over institutional and retail investors.

Advocates claim HFT plays a beneficial part in the market, extending market liquidity and pricing securities more effectively than different go-betweens, and lowering trading costs for everybody by tightening spreads. To keep a fair and orderly market, the New York Stock Exchange (NYSE) presented designated market makers in 2008 to work with price discovery and give liquidity to both institutional and retail investors — quite a bit of it electronically through HFT.

The HFT industry has utilized numerous questionable predatory trading rehearses — as our manual for HFT phrasing frames —, for example, front running, where traders identify approaching orders and hop in front of them before they can be executed. Investors say that since there are so many HFTs in the market, it lessens long-run returns since they take a share of the profit.

Traders at banks and institutions started to see the effects of HFT on their large orders during the 2000s. The traders started seeing how their order flow appeared to be exploited as stocks would race higher following a trader started buying the shares. This caused institutional investors to need to pursue the stock to get filled. The HFT firms would see the order flow demand and buy shares ahead of it, determined to sell the shares back to the investor at a higher price. It was only after years after the fact that large numbers of the investors realized of what precisely was going on, in this way they needed to figure out how to deal with HFTs in the years a while later.

Bloomberg's B-PIPE data feed, Thomson Reuters' Matching Binary Multicast Feed, and EBS Brokertec's Ultra are instances of high-speed feeds, which furnish investors and sellers market data with very low latency — the time that slips by from the moment a signal is shipped off its receipt.

Special Considerations

The stock market presently comprises of a huge divided network of interconnected and automated trading systems. HFT, portrayed by high speeds, ultra-short holding periods, and high order-to-exchange ratios, includes a half share of U.S. equity trading volume, which is critical however not exactly the more than 60% share kept in 2009. Smaller volumes, low market volatility, and rising regulatory costs have compacted HFT edges and prompted consolidation in the industry.

To address issues of exchange competition, regulators have presented speed knocks that randomize entry times and present random order processing delays. After the new IEX exchange presented its alternative trading system, which slows orders by 350 microseconds to kill high-frequency traders' advantage, the New York Stock Exchange followed suit in 2017 on its exchange for small and mid-cap companies.

Highlights

• Since light in a vacuum goes at 186,000 miles each second, a HFT firm with its servers co-situated inside an exchange would have a lower latency — and thus a trading edge — than a rival firm found even a couple of miles away.
• High-frequency traders invest vigorously to get the quickest networks and data feeds to gain a competitive edge in trading.
• The greatest determinant of latency is the distance that the signal needs to travel or the length of the physical cable (typically fiber-optic) that conveys data starting with one point then onto the next.
• High-speed data feeds are ultra low-latency data associations that give real-time data and executions for algorithmic and high-frequency traders.