Microwave and Laser Links in Latency Sensitive Trading

A microwave relay between Chicago and New Jersey cuts round trip time by roughly a third against fiber, a gain worth paying for only under a millisecond.

Microwave and laser links carry trading signals through open air rather than through buried fiber cable, and they exist for one reason: a radio or light signal moving through air travels close to the vacuum speed of light, while a signal moving through glass fiber travels at roughly two-thirds of that speed. Between two fixed points, that speed difference alone is enough to change which firm sees a price update first.

The physical mechanism is simple. Light in fiber is slowed by the glass medium it travels through, to around 200,000 kilometers per second against roughly 300,000 kilometers per second in a vacuum, and a microwave signal moving through the atmosphere is much closer to that vacuum speed. On top of the raw speed difference, a chain of microwave towers can follow something close to a great circle path between two cities, while fiber has to follow rights of way along roads, rail lines and existing conduit, which adds real distance on top of the slower medium.

The most cited example in the industry connects the CME's data center in Aurora, Illinois with the exchange data centers around Secaucus and Mahwah in New Jersey, a route that carries the price relationship between futures traded in Chicago and equities and options traded in New York. A fiber path along this route, built to follow existing infrastructure, has a reported round trip in the neighborhood of 13 milliseconds. A microwave relay chain covering the same two endpoints has been reported to bring that round trip down to roughly 9 milliseconds, an improvement of about a third, achieved entirely through the combination of a faster medium and a straighter path.

Microwave links require an unobstructed line of sight between towers, which is why a long route is built as a chain of hops, each one commonly spaced around 30 to 50 kilometers apart depending on terrain and tower height, rather than a single beam covering the whole distance. Heavy rain degrades a microwave signal, an effect known as rain fade, and providers typically operate on more than one frequency band or maintain redundant paths so that a storm over one hop does not take the whole link down.

Building a new tower or securing rights to an existing one along the exact great circle path is itself a slow and expensive undertaking, and firms operating these networks have been known to negotiate for years over access to a single tower site that would shorten a route by a few hundred meters, a scale of effort that only makes sense because the resulting time saving is worth real money to the strategies using it.