When milliseconds are worth millions of dollars, LEO speed… A NSR perspective.

In a book published in 1748, Benjamin Franklin penned, “Remember that time is money.” The application of opportunity cost, which is thought to have originated with ancient Greek philosophers but was made popular by one of America’s founding fathers, may nowhere be more crucial to business than in the world of high-frequency trading (HFT). This article covers how satellites can help high frequency trading achieve a significant speed boost. 

Plans for LEO (Low Earth Orbit) and VLEO (Very Low Earth Orbit) satellite constellations cannot provide data rates as high as fiber cables when connecting major cities. However, link delay also affects speed, and some of these high-throughput SATCOM ventures will be able to provide lower latency than fiber across long distances, which could increase interest in satellite networks among financial players.

Today, a major chunk of trading takes place between computer servers that use sophisticated algorithms to execute trades hundreds of thousands of times per second in an effort to continually earn small profits over very brief time spans. Due to the volatility of stock prices, HFT algorithms aim to immediately take advantage of arbitrage possibilities through speed of execution. In the era of cloud computing and artificial intelligence, immediately exploiting data might give a firm competitive edge because in speculative marketplaces, whoever receives information first enjoys a significant benefit. In other words, such a speed boost is crucial in many ways.

It is plausible to argue that a competitive edge of 10 milliseconds is worth millions of dollars for hedge funds and other financial trading stakeholders, putting aside the debates surrounding HFT, such as the risks of a market crash resulting from relying excessively on computers that engage in robot wars and make snap decisions in place of humans. Can LEOs actually offer fiber with less latency?

Let’s compare the delay of satellite and fiber links between New York City and London, two of the financial centers with the best global connectivity. Light moves more quickly in a vacuum, so according to NSR’s Non-GEO Constellations Analysis Toolkit, even the shortest-path, “great circle” submarine fiber connection between New York and London has a propagation delay that is 28% higher than that of a LEO constellation with satellites orbiting at an altitude of 550 kilometers (or lower), assuming that the satellites have inter-satellite links (ISL).

It would take 5,577 kilometers (3,465 miles) of fiber to theoretically connect New York City and London (assuming Earth radius of 6,378 km). Due to fiber’s light refraction index, which effectively causes light to travel around 40% slower than in a vacuum over such a short distance, fiber cannot achieve round-trip latency below 55 milliseconds. As a matter of fact, recorded latency metrics (PINGs) between NYC and London on commercial underwater fiber lines regularly demonstrate a round-trip delay floor of 70 milliseconds. Commercial fiber optic cables rarely follow the shortest paths—the “great circle”—between two end points because they frequently pass via network nodes and other hops.

However, a fiber-optics network implementation with extremely low latency that was specifically designed for financial players (quantitative trading system users)  achieves the smallest delay feasible and comes very close to the theoretical limits: The round-trip latency between the exchange data centers in New York (NY4) and London (LD4) is slightly under 59 milliseconds thanks to GTT’s recently purchased Hibernia Subsea cable route.

12 milliseconds quicker than fiber optics can be achieved using a constellation of low-earth orbiting (LEO) satellites that orbit at a height of 550 km (round trip propagation latency). This is a theoretical benchmark that disregards jitter (satellites are in motion) and processing delay added by active equipment (such as demodulating/remodulating signals). However, it should be noted that if the satellite network can be configured in cut-through mode across ISLs  (Cisco Interswitch Links) to minimize processing, the delay introduced by the two end point modems can be negligible.

Using Datum’s performance calculator as an example, a DVB-S2X Carrier at 155 Mbps with a 64K FEC Block introduces only 0.3 ms end-to-end (real satellite modem implementation). As a result, even many link legs (with various ModCods) can produce a very low FEC processing latency.

A Different Satellite Topology

A 550 km or lower altitude constellation shell may still outperform fiber optics’ shortest-path propagation delay by a modest margin even without ISLs, assuming no terrestrial connecting section, according to research using NSR’s Non-GEO Constellations Analysis Toolkit. Elon Musk’s “ground bounce” model presupposes the usage of intermediary “relay stations” (either user terminals with peer-type connection capabilities or plain Gateways utilized as “pivots”). Due to the challenges of setting up relay stations in the middle of the Atlantic Ocean, the NY-London example may not be the best one for this specific circumstance, but it still gives the idea.

Theoretically, even traditional “Hub & Spoke” SATCOM network topologies with terrestrially connected gateway stations at one or both ends might offer fewer propagation delays than fiber, albeit by modest margins in the 550 km altitude example. These topologies might not be very advantageous in practice because of the delay differences that moving satellites introduce, therefore ISLs will be essential.

Satellites to help HFT trading

Using alternative technologies to push the envelope and get the smallest link latency feasible is not a novel concept. This is one reason why the Chicago and New York stock markets are connected by microwave lines, but LEOs and VLEOs might also provide similar ultra-low latency capabilities to other exchange sites that are farther away. There has been an interesting prior satellite attempt: LeoSat, which in 2019 had to start over in order to lower the price tag for the constellation, saw the chance and announced in 2016 that it had entered into an agreement with a (undisclosed) globally operating financial trading company with offices all over the world.

Consider the effects on the connectivity of other significant stock-exchange cities that are farther away from one another, such as Tokyo, Shanghai, HK, Frankfurt, Milan, Mumbai, Seoul, Sydney, São Paulo, Singapore, Moscow, and other significant trading cities. The analyzed NYC-to-London “fast LEO lane” is one example involving two large financial districts. The latency difference for these cities between fiber and LEOs to reach Wall Street is even greater.

Because “Time is Money,” markets that are sensitive to latency may benefit greatly from the low latency of LEO and VLEO satellite constellations. Given the significance of ultra-low latency in the realm of algorithmic-based stock buying and selling, where a competitive edge of 10 milliseconds may be worth millions, high frequency trading (HFT) is a pertinent application.