Algos and high-performance systems build the free market

By Scott Sellers

In today’s market, traders need every second to execute trades and lock in profits. With trillions of trade opportunities in the market every day, the most critical front-line tools for taking advantage of those opportunities are trades‘ proprietary algorithms. “Algos,” as they’re called, automatically execute trades based on pre-programmed criteria. They can process millions of  trades in seconds, predict market movements, take advantage of arbitrage opportunities, speculate on trends and otherwise do whatever programmers design them for.

With high-frequency trading (HFT) platforms relying on these algorithms to drive an estimated 73 percent of the daily volume on U.S. equity markets, it’s absolutely crucial the financial services industry has the proper systems in place to ensure transactions are completed in real-time – the alternate reality without optimized systems is that an entire stock exchange can crash and shut down entirely – and that is a disastrous scenario.  Sometimes, as we’ll see, the Achilles heel of these systems can be a piece of software called the Java Virtual Machine (JVM).

Even the Perfect Algo is Nothing Without Great Performance and Low Latency

Algos are constantly being refined and tweaked in order to exploit market conditions in real-time. They can never be consistent, reliable or fast enough. Trading firms go to the extremes for speed by physically placing servers as close to the financial exchanges as they possibly can in order to shave nanoseconds off their response times. Even the smallest “micro” advantages can make or break profitability, as reported by Computer World.

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