The European trading landscape is seeing increased competition between high frequency traders and diminishing returns in traditional asset class such as equities. As a result, trading strategies are beginning to diversify in ways not seen before.

Where the race to zero latency has traditionally been a game for market participants in the cash equities and equity derivatives space, high frequency trading in the FX and commodity markets is becoming increasingly attractive.

While high frequency trading in the equities market has matured in recent years, FX and commodities trading has remained less efficient. As a result, high frequency trading firms are starting to turn their attentions to these asset classes, recognising the revenue to be made in those markets whilst being able to leverage on existing infrastructure and connectivity.

The opening by the London Metal Exchange of an access point to their electronic trading platform at Interxion’s City of London Data Centre further illustrates the mounting interest in fast access to these markets.

Another area that is attracting interest is the OTC derivatives market. Impending global reform, which mandates that all standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms where appropriate, and be cleared through central counterparties, has opened up a whole new market of opportunities, but also serious challenges in terms of managing diverse connectivity and real-time data sources.

In turn, multi-trading facilities (MTFs) are increasingly stepping up to get a piece of the action. However, to compete in the space MTFs will need to be creative and maximise the community of participants around them.

In addition to the movement into new and different asset classes, we are seeing increasing diversification of trading strategies in terms of the players involved. Specifically, institutional investors are recognising the value of proximity hosting to reduce risk exposure and the complexity of infrastructure.

In both cases, the time taken to deploy a new strategy is critical to maximising profitability.

However, assembling and maintaining connectivity to multiple liquidity venues on a piecemeal basis in house is a major undertaking. If an external provider has the 'critical mass' to be able to offer a wide range of connectivity to all the desired trading venues and trading technology under one roof, then both cost and complexity can be massively reduced without compromising on performance.

Furthermore, if a data centre provider hosts liquidity venues' matching engines or access points within its facility, this not only ensures ease of access, but also delivers consistent multi-market low latency in a single location. This in turn hugely simplifies the trading process as well as facilitating the implementation of multi-asset strategies.

In this context, a high frequency trading firm looking to expand and diversify its strategies will find a facility provider offering a centralised point of connectivity backed by segment expertise a far more attractive option than having to deal with all the necessary market plumbing in house or via a generic facility provider. Only through this simplification in trading infrastructure will firms be able to keep up with market movements and take advantage of the opportunities that come about with change.

Patrick Lastennet is director of marketing, Financial Services, at Interxion

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