(Source: SNIPER IN MAHWAH & FRIENDS)

After my first few public posts about shortwave trading, I gradually realized that I’d inadvertently created a worldwide network of deputy antenna sleuths. This is the final post in the Shortwave Trading series since the terms of my forthcoming employment agreement will prohibit me from future public talk on the technology of trading. I want to leave behind details on some of the research tools and techniques I’ve used. This is how the sausage is made.

I’ll also leave a list of locations that may be worth watching. Some may be near you. Even if I can’t talk about what’s found in the future, maybe you can? The comments below might be a good place to document new findings until there’s a better place offered.

In addition, following sections will set out the criteria I’ve used to assess the confidence that a shortwave trading site has been found, give example FCC searches, list links to web-based research tools I’ve found useful, give some tips on research techniques, and acknowledge the many people behind the scenes who’ve contributed to this work.

Plausibility Criteria

If you find something that looks like a shortwave trading site, how confident can you be that you’ve found the real thing and not a landing beacon for body-snatching space aliens? Since a shortwave trading site exists to link a local market to a remote market, I can think of two things that set a minimum bar for plausibility:

1. Visual evidence of a shortwave antenna with a heading toward a remote market. Previous posts in this series have shown many shortwave antennas you can use as models of what to expect. Examples have included headings around 50º from Chicago which cover Europe.
2. A path for connectivity to a local market. Visual evidence of this can be a microwave dish pointed in the direction of a local market.[…]

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(Source: SNIPER IN MAHWAH & FRIENDS)

I’ve heard that years ago, there was a stable business selling microwave data radios to local governments for networking their offices. Then the traders discovered microwave and everything changed for the radio vendors. Their new customers weren’t so much concerned about the cost—they just wanted the lowest-possible latency in the radios and repeaters.

I’m picking up signs that vendors in other industry segments are now seeing a surge in their business with the recent interest in shortwave trading. For example, TCI has had a good business making shortwave antennas for 50 years. Then they issued a press release in April 2018 saying they’re now working with “non-government customers to provide HF antenna communication systems that minimize timing-latency.”

Bloomberg has picked up the story of shortwave trading, digging through public records to disclose ownership of a site I described in a previous post. It seems like this is a hot topic!

In this post, I’ll show some recent site changes, document a fourth CME/Europe shortwave trading site I’ve discovered, detail discoveries from my trip up the east coast, discuss regulatory questions, cover two patents on shortwave trading, some miscellaneous things, and finally explain the connection between a sax-playing sheep farmer and shortwave trading. This is a long post and these are varied topics, so please just skip to the next section if you’re not engaged.[…]

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Last month, we posted a link to an article that explained why traders might use shortwave radio for high-speed, faster-than-optical-fiber communications. The article by Bob Van Valzah originally appeared on the blog, Sniper in Mahwah & Friends where they’ve just posted part two in the series:

I have previously claimed that trading over shortwave radio is real and presented the story of the first evidence I found of it. It was pleasantly surprising to see the story picked up by IEEE Spectrum, Hacker News, Hackaday, and others. But since I hadn’t anticipated such a diverse audience, I didn’t provide details needed to understand shortwave trading in context so a lot of questions were raised. I’ll provide some background here, answer the questions, and also document two other shortwave trading sites I’ve found around Chicago. Traders can skip ahead while I fill in the broader audience.

Why is there a latency race? Isn’t it just a waste of money?

Electronic trading technologist just take the latency race for granted, but it’s important to think about why it exists and what it means to the average person. When you want to fill your car with gasoline, you have the choice of going to the nearby gas station and accepting their price or perhaps comparing prices at stations a little farther away. We would all spend a lot more time comparison shopping if we didn’t have pretty good confidence that the prices at our local stations were competitive. But what keeps those prices competitive?

The analogy between your local gas station and electronic markets is admittedly imperfect, but I think it is helpful in understanding why latency matters and how you benefit. Nobody can buy a tanker of gasoline in New York and immediately sell it in Chicago. The laws of physics prevent us from economically moving such a heavy load over a long distance quickly. But a share of Apple stock weighs nothing. The Chicago price and the New York price can be compared and changed in an instant. Well, about 4 milliseconds is how long it takes for an updated price to make the trip. Prices can make about 250 one-way trips in a single second.

So when buying or selling Apple shares, you don’t have to shop around for the best price. Electronic trading companies have an incentive to build the fastest networks linking financial centers so that prices can move quickly between them. Buyers and sellers benefit because their local market has electronic traders who know the best prices on other markets and will be happy to do a local deal at the best global price (it’s market making). It doesn’t take a rocket surgeon to see the business opportunity in this type of trading, so high-speed traders have to be efficient because they’re competing against each other. The latency race has to happen for each market to have the best price. Competition between electronic traders limits their spend to the benefits that come with better pricing.

Why does radio help win the latency race?

Traders use radio because it can move prices faster than optical fiber.

I won’t bore you with the physics, but I will remind you of this elementary school experiment where a pencil appears to bend in a glass of water. This happens because light moves more quickly through air than it does through water. In the same way, radio waves move more quickly through air than light can move through an optical fiber. In trading parlance, radio is lower latency than fiber over a given distance.

But radio is also faster because it almost always covers a shorter distance. Fiber paths tend to follow roads and property lines that may not go exactly in the desired direction. Radio towers may be inconvenient, but they give the advantage that the signal can take the shortest-possible path allowed by physics, not the kinky path dictated by rights of way.[…]

Continue reading the full article on the blog, Sniper in Mahwah & Friends.