Hardware Acceleration in Trading
For some years, HFT (high-frequency trading) firms have invested in faster software and lower latency networks, but more recently their focus has turned to increasing network bandwidth and hardware processing speeds.
Looking to increase revenue, traditional software is being replaced by hardware implementations of financial algorithms bringing the algorithms much closer to the source of the exchange data. As a result, financial markets are becoming increasingly competitive and latency-sensitive.
Hardware Acceleration explained
HFT has equated to around 60% of equity trading volume in the US and UK markets, over the last five years. HFT trading has transformed the stock markets – and has been extremely controversial in the process. Using complex algorithms, this system of trading scans multiple markets for the smallest of opportunities and executes millions of orders at lightning speed. Traders might only make a small profit on each transaction, but by working fast and at high volume the returns can be considerable.
Speed is of the essence for HFT firms: customers want trades executed in less than 100 nanoseconds and the US equity options market sees 25 million quotes and trades occur every second. This is why FPGAs (Field Programmable Gate Array) technology – a reprogrammable device that allows algorithms to be compiled into hardware running at near processor speeds – has piqued the interest of the trading markets.
These silicon chips combine the best parts of custom designed ASICs and processor-based systems and accelerate functions otherwise performed by software.
FPGA: impact on the Industry
As financial markets are pushed towards hyper-liquidity, trading strategies are being forced to evolve. Decision-making relies less on human intervention and more on algorithms fed by high-speed, automated digital data feeds.
Using FPGA-based systems, trading firms are able to select the data they want to watch. These systems also help ensure trading strategies achieve the right balance of speed, low latency, precision execution, and cross-asset trading.
Benefits of FPGAs
FPGAs bring with them a number of benefits:
They accelerate some processes by an order of a magnitude (or more)
The latency of this hardware means an end to the ‘jitter’ experienced with software and brings an edge to companies that utilize the technology
They can be reprogrammed spontaneously (either completely or partly), avoiding the need to bring down an entire system simply to change a program
FPGA processing is more deterministic, thus reducing functional risk and simplifying testing
Risks to the Industry
Even though the benefits of FPGAs to traders are clear, uptake has been relatively slow. Firms looking to invest need to consider key factors – from regulatory changes to the rising costs of these solutions. Usage is often limited to recognized network applications, pack inspection and digital feed handling.
Once HFT firms have invested in an FPGA-based solution, the race is on to develop smarter, more efficient, and more profitable algorithms. But FPGA development is much more difficult than software and lead times to deployment can be lengthy. With ongoing support in short supply, firms risk losing that competitive edge.
Programmable hardware requires a totally new approach and much more planning than software. CPU-familiar software engineers lack the required skills, so the challenge for recruiters is to find individuals with the right combination of financial and engineering skills. Because such talent is in short supply, candidates with the right skills can command high salaries and may not want to stick around once a project has gone live.
The Client Perspective - The Hiring Picture
Over recent years, not surprisingly the bulk of the hiring for hardware talent within the trading industry has been in Chicago. A couple of firms have been very aggressive with hiring and scaling (with teams of over 10+ engineers) whilst others have focused on building small, dedicated teams. Whilst a handful of firms are very much on the right track and led by engineers who truly understand the industry, there are still trading firms who are heading down the hardware route with little strategy behind it.
Without a doubt, it is a candidate driven market and there are challenges faced by many firms in a bid to source and attract talent:
Lack of industry knowledge. The majority of hardware engineers in the industry are on their first or second role within a trading firm. It is difficult to tear them away – they are compensated very well, their work is still greenfield and exciting - plus they typically have hefty non-competes (unless they are in California, of course)
This means that firms often look for candidates outside the industry. This has its own challenges. The majority of this candidate pool is based in Silicon Valley – where their skills can be applicable to multiple different industries in the start up world – flying cars, autonomous driving etc. For many of these candidates, relocating to Chicago to work in a trading firm is simply not on their radar or something that they are interested in.
Narrow Focus. Many hardware engineers in technology companies – and especially those employed by larger companies – have responsibilities narrowly focusing on hardware development where knowledge in one or more additional fields including software engineering, algorithms, network engineering, or finance is desirable for careers in trading.
The interview process. Many trading firms are still refining their interview process for hardware engineers. We have seen some cases of over 100 candidates being interviewed for 1 hire.
Recommendations to Source Talent
Tap into candidate pools in locations such as Seattle, Idaho, Toronto, Phoenix.
Take time to ‘sell’ and explain the firm/industry early on in the interview process. Many candidates have little knowledge or awareness of what a trading firm does and need to be educated on all the benefits early on.
Be flexible and understand that many of the candidates will come from consulting/contract backgrounds – something that is typically frowned upon by trading firms.
Recognize that you need to be flexible and competitive when it comes to compensation.
The Candidate Perspective – The Future is Bright!
Whilst the above paints a somewhat difficult picture from the client perspective, in fact, the outlook is bright and it is a great time to be a hardware engineer! Whilst 10 years ago, traders were seen as the key to success within an HFT firm, hardware engineers are now demanding all the kudos. Compensation packages are great (upwards of $500,000 total compensation for a seasoned hardware engineer within the trading industry), projects are still in early stages and you are highly sought after by your competitors!
Selby Jennings is a leading specialist recruitment agency for banking and financial services. For more than 15 years, we have given clients and candidates peace of mind that the recruitment process is in expert hands. Our continual investment in best-in-class technologies and consultant training enables us to recruit with speed, precision and accuracy. Today, Selby Jennings provides contingency and retained search recruitment across 11 offices in 6 countries. Contact us to find out how Selby Jennings can help you.