Investment management firms can spend millions of dollars on fancy trading software and complex algorithms, but, if the system managing their market data is slow, then they're wasting their time and money. Data latency, the lag experienced when data is moved from one place to another, robs firms of their ability to leverage those investments and react quickly to market changes.
While it might be only a millisecond - one-thousandth of a second (think: a blink of an eye) - data latency can be the difference between getting a fill or being shut out of the market.
Danny Moore, COO of Incline Village, Nev.-based Wombat Financial Software, which makes software that allows for direct exchange connections, estimates that 60 percent to 70 percent of high-performance brokerage firms don't even know what latency is. "If you don't know what it is or where it's coming from, you can't address it," he says.
But there are things firms can do to reduce data latency. Following are five ways to tackle the problem.
1. Build a direct feed to an exchange. By connecting directly to an exchange, as opposed to a data consolidator, investment firms can gain between 150 milliseconds to 500 milliseconds in transmission times. Direct-exchange feeds eliminate the data hops and thus reduce latency, Moore explains.
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