John-Speed Killed The Floor Trader -- Wall Street's quest to process data at the speed of light relies on the physical proximity of servers to overcom

Martin, Richard. "Speed Killed The Floor Trader -- Wall Street's quest to process data at the speed of light relies on the physical proximity of servers to overcom." InformationWeek. Wall Street & Technology. New York:Jun 2007. Vol. 25, Iss. 6, p. 41

This article discusses the increase in electronic trading and the emergence of collocation of a firms system running their algorithms. Firms are hoping that the close proximity of their systems will eliminate time lags in area networks. In addition, firms are moving to electronic trading because they want their transactions executed instantly. For example, if a client wants to purchase 100 shares of Google stock trading at $600, and decides to call his consultant to purchase the stock it will take a while for the order to be executed and the price could jump up to $650 by the time the transaction takes place. Furthermore, firms are turning to electronic trading because a 1-millisecond advantage in trading applications can be worth millions of dollars a year to a major brokerage firm.

Collocation has allowed firms to execute transactions within seven milliseconds traveling from New York to Chicago. Furthermore, transactions taking place from East Coast to the West coast it only takes 35 milliseconds. Speed is extremely important to firms looking to obtain the best prices, which is why firms are paying high prices to have their servers placed in both the NYSE and the NASDAQ. The article explains how the servers in shared data centers are usually connected to Gigabit Ethernet. The Gigabit Ethernet uses the ultrahigh-speed switching fabric called InfiniBand increasingly used for the same purpose to support the servers and allow transactions to take place at such high speeds. InfiniBand is a high-speed input/output technology that speeds up the transfer of data-intensive files across servers, storage devices, and networks. Companies are looking to use InfiniBand because it will help reduce latency as a result from wires, switches and other equipment. Even though speed is important, how much faster can we go? Moreover, do we have the equipment that has the capability to support the speed?

Furthermore, while electronic trading sounds great it is putting floor traders out of work but is opening opportunities for ECNs to emerge. The stock market is now moving from a financial sector to an IT sector with the increase in efficiency and technology to execute trades and the elimination of latency.