(EXECUTION MATTERS is a Traders Magazine content series focused on the topics most important to traders and technologists in US equities and options markets. EXECUTION MATTERS is produced in collaboration with Lime Trading Corp.)
It’s well known that trading speed has taken giant leaps over the past generation, as markets transitioned from humans buying and selling on trading floors to screen-based electronic systems.
But as the so-called race to zero moves closer to its notional endpoint, where does trading speed stand as a differentiation strategy for market makers, proprietary trading firms, hedge funds and other active market participants?
The short answer: being fastest is still an effective trading strategy, but for a smaller universe of firms. For everyone else, being “smarter and fast enough” makes a viable business, according to Crisil Coalition Greenwich, which cited trading speed as one of its 10 market structure trends to watch in 2025.
“If you are the fastest and first to market, your trading logic doesn’t need to be unique to make money,” the consultancy stated in a January 6 report. “But the number of such firms has dwindled dramatically over the past five years, as data and trading links bump up against the laws of physics.”
A speed-first strategy can be likened to a football receiver who runs a 40-yard dash in 4.3 seconds; that’s eye-popping, but the prospect’s speed alone may not be enough to carve out a successful career. Teams may wish to instead draft a 4.4 guy – still wicked fast – who also has precise route-running and sure hands.
“Combining the most creative people with as much compute power you can get your hands on is where principal trading firms and hedge funds are now finding their alpha,” Crisil Coalition Greenwich stated. “Speed still matters, and the bar keeps getting higher. But running a successful quantitative strategy is now about unearthing unique correlations and market anomalies via predictive AI operated by a hyperscaler and capturing the profits before anyone else has a chance to figure out what it is you’ve done.”
In a May 2024 report entitled Trading as Fast as Lightning, Nasdaq Chief Economist Phil Mackintosh noted how quotes and trades travel over microwaves, lasers, and fiber optics, with speed and reliability tradeoffs to each.
The Nasdaq report cited an example of a trading route that would take 162 microseconds, or millionths of a second, via fiber, versus 89 microseconds via wireless. “That might not seem like much,” Mackintosh wrote. “But even in an Olympic race, a split second can be the difference between winning and second place – here, it might mean completing an arbitrage or being legged and exposed to losses.”
“In short, microseconds can matter,” Mackintosh added. “Just like for the past hundreds of years, it’s likely that the race for lower latency will continue.”
In a recent X thread entitled From Chaos to Code: The Evolution of Trading, financial technology company Algocipher Quantitative chronicled the industry’s journey from open outcry to high-frequency trading.
“Trading today is faster, more precise, and far more scalable than the days of open outcry,” Algocipher wrote, citing quantum computing and artificial intelligence as possible market disruptors going forward.
