Latency (Part II) – turn latency into opportunity!
How much is latency costing your organization?
The “Latency Rule” coined by Paul Buchheit, creator of Gmail, states that 100ms is where human interactions feel instantaneous. Anything above 100ms, the feeling of latency kicks in.
Research by Tabb Group back in 2008 found that a retail broker could lose $4 million per millisecond if their trading platform is 5 milliseconds slower than the competition. Fast forward to 2021, the demand for high-speed and “always-on” services delivered over various devices has not exacerbated as technology races to the bottom with latency measured in microseconds. The average dollar per millisecond latency has grown exponentially but it is a persistent issue that many organizations attempt to solve by throwing more money into customer support instead of fixing the underlying technology issues that they are not familiar with.
How are organizations solving latency issues?
Based on our experience, many organizations choose to undermine the issue of latency until they start losing customers or increase in customer complaints. The reason for this is that the market behaves normally 90% of the time and spending money in solving an issue that only happens during volatile markets does not seem justified.
In order to capture a profitable trade, traders need to be able to capitalize on the market moves at the exact moment. During non-farm payroll, a typical FX or equities broker can expect a surge of at least 10-50 times the number of transactions per second. Network bursts during volatile market conditions usually increase trade rejects or incur huge slippages.
“The opportunity cost of missing a trade or having a poor fill rate will make customers lose confidence on the broker. Logically, you would expect your customer to complain but, in most instances, they will just trade away with your competitors when it happens,” Soren Klausen, Sales Director at AlpFin, explained.
A survey by Turbonomic (refer to diagram above) reveals that many organizations spend their budget on improving application-level latency and monitoring software. Unfortunately, these solutions do not solve the root causes of latency issues, i.e., reducing the distance between your users, applications and servers.
As customers’ requirements for high-volume, high-frequency and market data consumption increase, their demand for low latency connection increases. We have seen companies migrate application and data servers to the cloud only to find that moving to the cloud is not a panacea to removing the underlying latency issue. After spending hundreds of thousands of dollars and a few years to implement, latency remains unchanged. Do you know that inter-cloud latency, if not configured correctly, can be worse off than self-managed solutions?
“The key to solving latency issues is to reduce the distance and interconnections between your customers, servers, clouds and data source. We are seeing organizations increasingly bypass the internet and interconnect their customers through private networks in order to gain more control and visibility over their infrastructure to deliver the ultimate trading experience. #AlpCloud and #AlpLightning solutions are specifically designed to meet those needs,” Klausen added.
Not all latency is created equal
As businesses go global, the problem of high latency and network congestion becomes more apparent. The huge growth of online trading has brought about more business opportunities but also challenges as data needs to be routed across different regional networks and user devices 24 x 7. These are real challenges as businesses scale into emerging markets with significant growth opportunities but ladened with weak network infrastructure and stringent internet regulations.
There is no one-size-fits-all solution but engaging a technology partner like AlpFin that has a holistic understanding of the roundtrip data path from your user’s device through the ISP network to destination servers will significantly improve your network speed and resilience.
“As a start, we perform a network diagnosis on the client's existing infrastructure to identify the root causes and suggest specific solutions to address those issues. We help existing or start-up FX and multi-asset brokers throughout the trade cycle from datafeed, liquidity sourcing, pricing engine, risk warehousing tools to cloud hosting and ultra-low latency connections,” Klausen commented.
Turn latency into opportunity!
Most brokers view latency as a technical expenditure or cost centre but the savvy ones will turn this into a revenue opportunity when other competitors fail to deliver. Organizations that offer high-speed and reliable online connection to their users at all times will ultimately translate into more satisfied customers and increased revenues. In order to seize this revenue opportunity, your technology framework needs to be ready to support real-time interactions and data exchange 24 x 7. Imagine if you are the only one quoting prices when your competitors switch off around NFP or their server goes down when trading activity spikes?
“For retail brokers, their priority is to have the ability to minimize costs when they outsource their trading technology, cloud and network infrastructure to the service providers. What we are proposing is to turn these costs into an investment that will help them win and retain more customers by successfully capturing the surge in trading activities during volatile market conditions. If a broker can stand the test of volatile markets, it will win customer loyalty and confidence to trade with them at all times,” Klausen added.
1) Are you curious about how much your business suffers from network latency issues?
2) Would you like to know how improvement in network latency can help you win more business?
Leave your contact details for a complimentary latency diagnosis session and learn more about how network latency is costing your business.