What is it about cloud computing that causes such a disturbance in the force? The seduction of low-cost yet massive compute power creates overwhelming interest. Yet fears of a too-good-to-be-true offer create an emotional tug-of-war not for the faint hearted.
Momentum is building fast within the trading and investment business to benefit from the $18B cloud computing industry. In a recent OneMarketData survey, respondents overwhelmingly look to avail themselves of all that cloud offers. Over 77 percent expect to jump headlong into public and/or private cloud platforms in 2014. A weighty figure, made even more significant against the backdrop of current usage – disappointingly low.
Yet, despite its perceived benefits the capital markets industry has been slow to adopt cloud services or decide what, if any trading-related functions to migrate to a cloud platform. That is changing as market participants look to find alpha anywhere they can. The allure of cloud computing is lower technology costs and improved profitability that comes from more in-depth algo testing.
A key characteristic of the cloud is rapid elasticity which offers self-service scalable compute power unheard of prior to cloud technology. Such pay-as-you-go scalability defines a new archetype for large scale model back-testing. The increasing importance of software testing is a major focus in the post Knight Capital era. 63 percent of the survey respondents picked it as the primary solution for the cloud.
Yet with all the fervor toward increased adoption, there are still barriers ahead. Financial firms face the same angst as any commercial entity – navigating the risks of externalizing infrastructures and the inherent loss of control in doing so. But the technology-heavy trading and investment business invite unique challenges to cloud platforms not so easily solved – performance for one.
Performance has a direct impact on profitability for all market participants, not just High-Frequency Traders (HFT). Processing speed has an immediate impact on trade decisions and increasing algo sophistication implies more calculations, more analysis and more processing time. This should not be diametrically opposed to latency
goals. Fast processing time offers advantages to spread trading, pairs, reversion, smart routing and risk analysis. And is the difference between winning and being just another also-ran.
A move towards cloud signals a fundamental shift in how we handle information. Financial firms will move first with data-heavy decision-support functions – model back-testing, quantitative research and transaction cost analysis. The days of cloud-as-a-fad are over. It’s a game-changer creating a major paradigm shift in business initiatives with its vast computational power, storage and a wide variety of application solutions at a lower cost structure.
Click here for the survey report on the cloud computing trends in capital markets.
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