Markets only accept properly formatted messages.

So you pre-fill on ram hardware an hft player's full messages, sometimes as many as 100 data fields. So the dedicated client has its own hardware tender, that needs only a udp message with limited fields , less then 128k, such as security type, security id, price parameters, special order instructions, and so on. Its faster or equal than a ping. You can beat the hardwired friction with wifi or line of sight microwave tunneling. Then the SIP server response is relayed in the same way.

You can now see fast relay wave signals around the markets. They bypass the sip servers to the market makers. As if the order came from floor runners. The cellular voice on your phone, finds and locks the route. So, If watch a hockey game on site, can you relay the sound faster than the tv or radio ?

Now, here's the crux, if you know the behavior of HFT's, you adjust you Baysian behavior and cancel the advantage. Steve.

Stephane, thank you for your response. Does each co-located HFT client have their own dedicated receiving queue on the NIC of the exchange's matching engine server? Or perhaps they have their own dedicated NIC? Also are you saying they use UDP instead of TCP?

Cameron, actually, net packet translation takes too long. Think about the keyboard on your computer. Your computer chip has a constant listener on the ram chips section dedicated to your keyboard. If a "key-press" is sensed, it will post the key you pressed. The HFT gang, uses hardware listening. There are protocols that are not router based, but direct twisted pair dedicated circuits, and also cell phone type vpn triggers, that hit hardware listeners, and are much faster since they avoid the router circuits. So why does BATS and NASDQ and NYSE Euronext provide these circuits ? I installed telco direct access private lines in South Carolina. These folks need to have equal access times, and that is certainly not the router switching maze of the inter-network scheme. So HFT players utilize this equal access to obtain hardware switching access. The solution is known but not implemented: use the send time, and not the receive time to determine the time precedence. Steve

Eurex and xetra use TCP for Order Entry and UDP for market data

Sebastian: TCP and udp is the only choice available to retail accounts. But if you are a large volume trader, you may have more direct access options. HFT trading is not about routing an order through a bunch of routers from various telco's, ie the retail internet. You want a dedicated line. Markets have their own message format , like fixml , and they can avoid getting wrapped in a routing protocol. In hft trading, you can get piped through simpler hand shake protocols and you don't want or need your packet to be flipped around routers. But that requires dedicated lines, I mean hardware like copper twisted pair cable or coax or line of sight mw. IE the internet is not the only way to send messages. In fact the old telegraph lines in the 1800's with Morse code, were faster then the internet, for sending one byte anyways. Thanks for your comment.

Cameron: if you have a funded account, I have a group that engages in live trading. Equity options. 10 contracts, as the small blind. Very low cash needed. We trade in concert. Its a 50 to 100$ an hour job. Mostly we exchange risk for liquidity. Trend and heartbeat. Market making trim work. Even though you don't loose on average, a bad day is a small paycheck for 6 hours work. Your payday comes 5 or 6 times per month. Lots of patience, a clean weapon, 100's of trades, endless hours boring repetitive work, then the market delivers. Its not luck, its hard work. Just a paycheck paid by players hunting for a quick buck, who rely on a fancy model. Your thoughts ?