Market Data Could Be The Next Crypto Arms Race
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How long is one millisecond? It takes half a second – 500 milliseconds – for the human nervous system to turn a thought into speech. It’s too short to notice in daily life, but for institutional traders, a millisecond can be the difference between securing a key advantage and losing millions of dollars.
Over the past three decades, computers and algorithms have gradually replaced humans as the main operators in the financial markets. A well-programmed algorithm can do what no human can: work around the clock, scan reams of market data in an instant, and find the smallest disparities or signals to exploit for (potentially) considerable gain.
IPC Systems, a market data and trading solutions provider, will now include the cryptocurrency data feed from Intercontinental Exchanges (ICE) – the company which owns the New York Stock Exchange – into its Connexus Cloud. Real-time data from major cryptocurrencies, like Bitcoin (BTC), EOS and Litecoin (LTC) will be provided through a cloud solution which connects more than 6,000 market participants from around the globe.
IPC works in the background, providing market data for some of the largest financial institutions in the world. Although few lay people know what it does, or have even heard of it, IPC underpins the trading operations which make institutions billions every year.
Mike Smith, Director of Global Exchange Relations Management at IPC, said Connexus Cloud’s “completely unique” offering gave institutional investors an advantage in the cryptocurrency market.
In an email to Crypto Briefing, Smith explained that data speed and reliability allow institutions to compete in a fast and complex trading environment. “Institutional investors rely on trading partners around the world, handling massive amounts of data, so [they] cannot afford to have connectivity or accuracy issues,” he said.
IPC’s market data is updated 200 million times every day, or once every four milliseconds. For comparison, CoinMarketCap updates its data every minute. This makes market data on IPC’s Connexus Cloud 15,000 times faster than the most popular price aggregator.
Market data is crucial for institutions
Electronic trading is an arms race. For financial institutions, faster computers and more accurate data mean higher profit margins. As Bloomberg reported last year, many of the largest Wall Street banks are jockeying for position, looking to gain the slightest advantage over an equities industry worth nearly $60bn.
A report published by the Tabb Group, a research and consultation firm, found that brokers could lose millions from even a fractional delay in market data. The researchers calculated that a firm could lose upwards of $4M per millisecond, if its data feeds were five milliseconds slower than their competitors.
“If a broker is 100 milliseconds slower than the fastest broker, it may as well shut down its FIX engine and become a floor broker,” the report concluded.
Institutional investors have made their presence felt in cryptocurrency. Crypto Briefing has already reported on how ‘bots’ – shorthand for algorithmic trading – have come to dominate the cryptocurrency market.
Whereas a once-a-minute update to market data would be barely noticeable to retail investors, it would be laughably slow for institutions. Simply put, a trading firm wouldn’t stand a chance if it used this data.
With IPC adopting ICE’s cryptocurrency data feed, the market is laying the foundations for greater institutional involvement. As has already happened in the traditional world, market data may become crypto’s next big battleground.
The author is invested in digital assets, including BTC which is mentioned in this article.