Many traders believe that the speed of their trades depends solely on their computer's power and internet connection quality. But there’s another key factor that’s often overlooked—geography. Yes, your physical distance from the exchange can be crucial in a world where milliseconds make all the difference.
Imagine ordering a pizza. If the pizzeria is just around the corner, you’ll get your order faster than if it’s on the other side of town. The same principle applies to your orders on the exchange. Instead of pizza, it’s your trades, and instead of a city—it’s entire states.
Let’s dig deeper. The major U.S. exchanges are physically located in several key spots in New Jersey. Nasdaq, for instance, is based in Carteret, NYSE in Mahwah, and many other platforms operate out of Secaucus. And this is where things get interesting.
If you send an order from Secaucus to Nasdaq in Carteret, your signal has to travel around 20 miles. That doesn’t sound like much, right? But in the world of high-frequency trading, that’s an eternity. Your order will take roughly 200 microseconds to reach its destination. Now, imagine your competitor is sitting right in Carteret. Guess whose order gets executed first?
This isn’t just theory. The big players in the market have long recognized the importance of geography and use it to their advantage. Market makers and HFT firms spend millions of dollars to position their servers as close to exchanges as possible. They chase every microsecond because, at their scale, it translates to serious money.
So what can an average trader do? Do you have to move to New Jersey? Fortunately, no. But there are a few things to keep in mind:
- Choose your broker wisely. Find out where their servers are physically located and how they connect to major exchanges. A good broker should have points of presence in key data centers—Carteret, Secaucus, and Mahwah.
- Pay attention to order routing. Some brokers offer "smart" routing, which considers geography when sending your orders.
- If you're an active trader, consider colocation services. This allows you to place your trading server directly in the exchange’s data center.
- Don’t overlook VPS (Virtual Private Servers). They can be a cost-effective compromise if full colocation is too expensive.
Speaking of brokers, it’s worth noting that some, like Lime, have already factored geography into their infrastructure. They maintain points of presence in all three major New Jersey data centers, significantly reducing latency for their clients.
Understanding the role of geography in trading is another step toward professionalism. In a world where every microsecond counts, knowledge truly is power. While some traders still believe speed is just about a powerful computer, others are already using geography to their advantage.
After all, trading isn’t just about analyzing charts and news. It’s also about understanding the market’s infrastructure. And those who consider all factors, including geography, gain an extra edge in this highly competitive game.
So next time you send an order, remember: your trade is like that pizza. The closer you are to the "pizzeria," the faster it arrives. Except in our case, instead of a delicious dinner, it's a potential profit. And that, let’s be honest, is even more satisfying.
