Traders dealing with today’s electronic market are willing to sacrifice some speed if it allows them to better manage their risks, said Donal Byrne, chief executive officer of technology company Corvil Ltd.
“The environment we work in today is dramatically different,” Byrne said today at the Bloomberg Enterprise Technology Summit hosted by Bloomberg Link in New York. “In 2008, 2009, it was speed at any cost. Now it’s speed fast enough at the right cost,” with the ability to manage the risks associated with the trading, he said.
The proliferation of high-speed, computer-driven trading means the profitability of transactions can be influenced in fractions of a second. Traders have invested in more powerful servers and techniques such as co-location, in which exchanges let them place computers close to the market, to improve execution speed. The faster speeds come with greater risks, Byrne said.
“A problem with these infrastructures is that they tend to have a cliff-edge failure scenario,” said Byrne, whose company’s products and services help clients measure latency, or the time it takes to process data, and speed up stock trades. “If we observe that there is a cliff, the risk is how close you want to go to the cliff edge,” he said. “Latency is really inversely proportional to risk.”
Speed isn’t only about how quickly a trader can access orders at a market, Stephen Ehrlich, CEO of New York-based Lightspeed Financial LLC, said at the same event. It’s about how quickly the trader’s systems can get the quotation and transaction data and analyze the information, he added.
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