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High Frequency Traders Implement Hollow Fiber to Get Close to the Speed ​​of Light in Data Transfers




The wall street journal writesthat among high-frequency traders it is widespread practice to introduce an experimental type of cable to speed up data transfer. Firms are looking to gain a nanosecond advantage over competitors by using hollow fiber.

The technology race is driven by the need to transact stocks faster than competitors.

Hollow fiber is the next generation version of fiber optic cable used to provide broadband Internet access to homes and businesses. These cables carry data encoded as light beams. Hollow-core fiber contains dozens of parallel air-filled channels that are thinner in volume than a human hair.

Since light travels through the air almost 50% faster, data transmission over hollow fiber takes about a third less time than a standard cable of the same length.

The difference is often only a tiny fraction of a second. But in high frequency trading, this is important for making a profit. HFT firms use sophisticated algorithms and ultra-fast data networks to execute fast trades in stocks, options and futures. Many of them hide their trading strategies and technologies.

A decade ago, Spread Networks spent about $ 300 million laying fiber optic cable straight from Chicago to New York so that traders could send data back and forth along the route in just 13 milliseconds. Within a few years this communication was replaced by microwave communication networks, which reduced transmission times to less than 9 milliseconds.

HFT firms have also used lasers to transfer data between the data centers of the New York Stock Exchange and Nasdaq Inc., and they have built their algorithms into ultra-fast computer chips. Now traders are forced to fight for nanoseconds.

DRW Holdings LLC and Jump Trading LLC of Chicago are among the trading firms that have used hollow fiber, sources said. Jump’s venture capital division has invested in Lumenisity Ltd., a UK-based startup that makes such fiber, one said.

According to industry engineers, high-frequency traders use hollow fiber for short distances of no more than a few hundred meters. One common use, they said, is to connect the data center that houses the PBX systems to a nearby communications tower. From there, the HFT firms transmit the data further via microwave antenna networks.

The use of hollow fiber was first thought about in the 1990s, but the idea has not gained widespread acceptance, since the signals transmitted through such a cable decay faster, and this makes it impractical to use it over long distances. In addition, the complex cable design is costly to manufacture.

However, in recent years, the cost of producing hollow fiber has dropped, and some manufacturers have succeeded in creating a hollow core cable that can transmit data over long distances. This aroused interest among traders.

One manufacturer, OFS, has received more than a dozen inquiries from HFT firms or high-speed retailers over the past year. Lumenisity, a startup backed by Jump, is betting that hollow fiber will be used not only in trade, but, for example, in
telecommunications and 5G networks.

Skeptics point out that even if manufacturers create fiber that can transmit data tens or hundreds of kilometers, it is unlikely to replace wireless networks that transmit data over the air, since underground cables will inevitably have bends that slow transmission.

Proponents say hollow fiber can be used for high-speed links in places like northern New Jersey, where NYSE and Nasdaq have their data centers, or even under the Atlantic to connect London and New York.

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