Traders 'waste' money on technology to save nanoseconds, without measuring the likely financial benefits, said industry experts.
A more careful use of technology would provide a better financial return, IT industry executives said at the Enterprise Computing Strategies Summit in London.
John Bar, research director at event host the 451 Group, said reducing delays in electronic trading was vital but warned that traders were often spend disproportionately on systems and messaging networks at a cost far greater than the financial benefit gained.
“It’s important to be clever about how you invest in improving speed,” he told an audience of IT executives. “You need to know where any latency is coming from, and ask yourself if it’s serious. If it is, you can then identify the hot spots and optimise them.”
PJ Di Giammarino, chief executive at think tank JWG-IT Group, agreed that traders needed to make better plans before investing in technology.
“If you spend for spending’s sake, and if you’ve got to be the fastest just to boast, it’s not going to work. You have to look at the value you’re getting back,” he said. “This industry wastes a lot of money on technology.”
But Hirander Misra, chief operating officer at alternative stock exchange Chi-X Europe, said the question over speed would not go away. “Traders feel they should be as close to the exchange as possible, and as quick with trades as they can, especially for high frequency players such as hedge funds,” he said.
“Each of their trades is becoming smaller because of algorithmic trading, so there are more trades in more areas, with more messages. That’s why they need to optimise speed.”
About half of trades last year on the New York Stock Exchange were made using automated IT systems, the 451 Group said.