“Tick to Trade” – is it the new must have metric in trading performance?
The saying ‘time is money’ means more in the world of trading than it does anywhere else. And that’s time in its teeniest form – picoseconds, nanoseconds, microseconds. They all spell the difference between profit or loss, success or failure, competitive edge or back of the queue.
What is ‘tick to trade’?
This is why tick to trade – the time interval between receiving a market ‘tick’ (a price movement in the market) presenting the opportunity to the algorithm, and processing the buy or sell order – is so important. In such time sensitive markets, the time taken to respond to incoming market data – tick to trade – determines how competitive trading can be.
Firms that respond quickly have systems that can generate trade orders faster than those of their rivals. And the slower the technology, the slower it will be to place orders on a market that has moved on. This has a direct impact on profit and loss.
Having the visibility to measure ‘tick to trade’
The problem is that it is really difficult to know how long systems are taking to process orders. Even if you have an overall view of the delay between seeing a market data tick and placing an order, you won’t necessarily know the root cause. If your performance isn’t great, you won’t have the visibility to understand why and what you need to do to improve that performance. And if you don’t have highly granular visibility of your trading platforms, you’ll never be able to understand why your tick to trade performance is poor.
Monitoring and measuring – the way forward
What you really need to be able to do is monitor tick to trade at multiple points throughout the trading environment, from the point it lands in the trading system, along every ‘hop’ until the order is placed on the exchange. Monitoring each hop – every time a piece of market data goes through a switch from one part of the infrastructure to another – ensures you can measure the time delay or latency of that hop. It also helps identify where the performance bottlenecks are which is vital before they can be resolved. Bottlenecks are the enemy in trading environments, because they cause delays.
Seeing is believing…
The thing is, once you have that information, you have the insight to put practical measures in place to improve it. For example, you might have a tick to trade target of 100 microseconds, but you might be falling short and not understanding why. As soon as you have visibility across your trading platforms and can monitor each market data message through multiple points as it travels through your infrastructure, you can put in place measures to improve any glitches. You might then be able to get tick to trade down performance to perhaps 10 microseconds – why not? You need to be able to measure the environment to enable that visibility.
Tick to trade is important because it helps financial institutions understand the performance of their internal systems and the performance of the exchanges on which they are trading. And reducing that metric helps banks and traders to be more competitive. Why? Because every nanosecond counts.
If you would like to find out more about measuring tick to trade, please get in touch with Paul Spencer, director at Velocimetrics www.velocimetrics.com