Remember the microwave tower located in a Belgian cow pasture, used for transmitting information for the American Armed Forces when suicide bombers attacked the US military barracks back in 1983 in Beirut, Lebanon, killing scores of military personnel?
“High-frequency” traders are now using the microwave tower. A company based in Chicago, Jump Trading LLC purchased the tower in 2013 through Toren Navo Aansluiting Ltd., an affiliate company based in the UK. Jump Trading is founded by former pit traders.
From Fiber Optic To Microwave Technology
With the microwave tower, trade orders that used to be made using shouts and hand signals are now traveling across continents swiftly at the speed of light. Fiber-optic cable was the choice of electronic trading firms as it used to be the fastest way to send trade orders.
But today, microwave technology has gotten way ahead of the competition as it can convey data in almost half the time which is critical in squeezing profit from fleeting and tiny price discrepancies in assets traded globally.
Microwave For High-Speed Transmission
Anyone who uses a microwave has a distinct advantage. Trading firms who want to maintain their relative speed have to use the microwave. The recent purchase and repurposing of the Belgian microwave tower by Jump Trading come as high-frequency trading faces extra scrutiny triggered by the book written by Michael Lewis, “Flash Boys” where he accused the trading industry of rigging markets.
High-Frequency Traders Under Investigation By The AG
One of the firms subpoenaed by Eric Schneiderman, the New York Attorney-General (AG), was Jump Trading. The AG was looking into the possibility of electronic traders making a profit from non-public information. The United States FBI is also looking into the matter as reported by Bloomberg News in March.
Shortening Time For Orders
Experimenting with microwave transmission by trading firms in the US started about four or five years ago. Firms were checking if they could shorten the time for orders and financial information to travel between data centers in the New York City suburbs and those outside Chicago. This was disclosed by the manager at Colt Technology Services Group Ltd. in London, Hugh Cumberland, whose clients include “high-frequency” traders.
Repurposed Military Towers
Former military towers like the tower in Belgium were originally used by US Armed Forces carrying their handheld radio and PRC-152 accessories, to transmit RF messages during the Cold War, have been repurposed and are now used to shoot signals at light speed from Frankfurt bourses to London exchanges.
For any trading firm, there’s only one goal – to make profits from price moves in stocks and other assets that evaporate even before human traders can catch up or in terms of measurements, in millionths or billionths of a second.
Edge Of Microwave Over Fiber-Optic
The potential of microwave to be faster than fiber optic is due to the data being shot in a straight line through the air from one tower to another. For traders, speed is highly and critically important in competing to capture price movements in stocks or other assets on various markets regardless of location and time zones.
Disadvantages of Microwave Tower
But it’s not to say that microwave is the perfect technology for trading firms. Some of its disadvantages include:
- Microwave can’t carry the volume of data that fiber optic can
- Microwave’s bandwidth is narrower
- Poor weather and deflections of the English Channel can disrupt trade order transmissions
- Many of the trading firms with a microwave tower need to have a cable network backup
Other Use Of Microwave Tower
Signals run the risk of breaking up beyond 62 miles (100 km) prompting trading firms to depend on multiple towers. While using a single tower doesn’t benefit a trading firm, other firms use it to force rivals to go around it by using a slower and less direct route, or by hoarding the frequencies that companies need to be able to transmit financial data
Will other Wall Street firms buy microwave towers and repurpose them for high-speed trading or frequency squatting?
Article Sources:
http://www.bloomberg.com
This news does not surprise me at all, especially after watching the 60 minutes report and the documentary film, Wizards of Wall Street, both of which are about high speed trading that has taken over Wall Street. There is no limit to what these high speed traders will do to gain even the most nanosecond of an advantage over the competition – otherwise known as those who trade on Wall Street like most persons, either on the floors of the New York Stock Exchange or day traders with a normal internet connection.