The Cloud for financial trading
Jeff Mezger is Vice President of Product Management at TNS
There will be several board meetings taking place right now, with the CEO’s saying, ‘we should be in the cloud.’ But, in reality, what does this mean for financial trading institutions? Jeff Mezger, Vice President of Product Management at TNS, considers the challenges and opportunities when embracing a cloud strategy.
Financial trading firms, from exchanges to data vendors, brokers, hedge funds, and even proprietary trading firms, are embracing cloud computing. The public cloud is also rapidly becoming the natural home for FinTech start-ups which are driving and supporting innovation in electronic trading markets; but how effective is it for financial trading? It is vital that the C-suite understand the organizational and technological challenges with cloud adoption. Firms need to ensure that the right people, with the right skills, can facilitate an effective transition and that there is a clear strategy for cloud implementation.
Cloud is Cheap and Easy?
We have all heard the claim that ‘cloud is cheap’, in fact, it is incredibly cheap to put data into the cloud and keep it there. However, taking data out is expensive. Many customers look at the cloud as something that makes business simpler and lowers costs (depending on what it is being used for), and yet firms still need to figure out how to operate in a business-as-usual capacity, while simultaneously adopting the cloud to do exactly that. If this is not your core competency, you will likely spend valuable time and resources trying to figure it all out, only to find it is not as simple as just ‘running in the cloud’ – replacing bare metal with a reliable and scalable cloud infrastructure is mission critical.
The cloud is not one general thing, there are different factors to consider, such as geography. Different providers have physical locations from where their cloud solution operates, for example, AWS has servers in Dublin, London, Paris, Frankfurt, Eastern USA, Central USA, and so on. So, understanding that there is a geographic element to the public cloud is fundamental. The best trading strategies require a highly resilient and scalable infrastructure. Many factors affect low latency trading, especially hardware location, the number of network hops, and the resiliency of an infrastructure’s architecture, including both the scale and power of network connectivity.
The reality for cloud providers such as AWS, Google, and Microsoft Azure, is that they make billions in revenue through scale, rather than sophistication. Currently, they cannot accommodate the particular requirements needed for electronic trading. These large cloud providers would need to embark on a significant investment program to be able to deliver the sophisticated and expensive colocated infrastructure required by electronic traders. So, for the time being, electronic traders typically use the cloud for less latency-sensitive purposes, like risk management, data storage, development work, and modeling new strategies.
Cloud Benefits for Traders
Cloud is great for big data analysis. As mentioned, putting data in, and examining it is cheap, however subsequent extraction of that data is definitely not cost-effective. It can be argued that cloud-based trading platforms help financial firms store, move, and manage large amounts of market data, allowing them to make more informed trading decisions through effective data analysis. It is also good for transferring large volumes of data between regions, like London and New York, and can aid in adhering to regulatory compliance, by enabling real-time monitoring of trading activity and longer-term storage.
Cloud provides the ability to ‘dial-up’ additional resources on demand, to move workloads around, to innovate, and then to quickly learn lessons and pivot to a new initiative when needed. This, together with having access to such resources from any location, removes operational overheads, which is an attractive proposition to electronic trading firms, especially given their need for competitive advantage and increased profitability.
Help to Make the Move
It goes without saying that firms need to futureproof their trading infrastructure. Working with a provider that is constantly reviewing market opportunities, and who can offer scalable solutions to accommodate the demands of ever-expanding bandwidth, is key. A managed solution that provides both access to, and distribution of, vast amounts of raw market data is of equal importance. As traders enter the market, become successful, and diversify their portfolios, their market data needs can place excessive network capacity pressures on their infrastructure. This is why TNS is seeing an increase in firms seeking a provider that can easily accommodate these requirements and handle sudden data bursts during high-activity periods.
TNS were the first to deploy Layer 1 switches for the lowest latency shared connectivity in all major exchange colocation sites, and recently completed an upgrade to their European backbone to 40 and 100Gbps. These infrastructure investments in their backbone will provide the necessary bandwidth to move data at will, and also protect against market volatility and swings in volume, which have come to characterize electronic markets.
A managed hosting provider offers competitive trading infrastructure, connectivity, and raw market data services. Utilizing the benefits that the cloud provides, for instance, moving or analyzing large volumes of data, is a key part of infrastructure strategy for most TNS customers. Delivered as a fully managed Infrastructure-as-a-Service offering, we provide an unrivaled global mission-critical footprint that significantly reduces the burdens, complexities, and costs attributed to firms ‘going direct’.
TNS’ standardized Dedicated Server offering, is the first phase in the deployment of a new cloud platform for Financial Markets. Designed specifically for high-performance trading, it utilizes TNS’ state-of-the-art bare metal servers, as well as ultra-low latency trading connectivity through TNS Layer 1. The complete suite of hosting solutions will offer a range of dedicated and shared computing options to meet the needs of traders and investors of all types. This is the first step in addressing a significant gap in the industry, as these offerings have been specifically designed to meet the performance needs and wider demands of capital market participants.
Financial institutions need to be strategic in their approach to transitioning to the cloud, in order to maximize the benefits and continually review and revise their adoption decisions. This will ensure that, as technology evolves, today’s choices remain appropriate and adaptable to a dynamic future. This can be made much simpler by working with a dedicated provider of mission-critical infrastructure, connectivity, market data, and analytics services for the Financial Markets community, allowing you to focus on your core business.