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Editor's Note: Take a look at our featured best practice, Data Center Financial Model (10+ Year DCF & Valuation) (Excel workbook). The Data Center Financial Model with a 10-Year DCF (Discounted Cash Flow) and Valuation provides an in-depth financial analysis of a data center business. It includes detailed projections for revenue streams, operational expenses, and capital investment. This model helps assess long-term [read more]
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The technology infrastructure has become an issue of high importance for the management of trading firms. A trading approach may prove itself efficient in tests but the actual success of this strategy in real conditions depends on systems that will allow processing data and making orders efficiently, not to mention the availability in busy periods of time. Downtimes in the network or overloaded processors as well as poor server settings may disrupt trading processes crucially. So choosing an appropriate hosting option is part of a firm’s operation risk strategy, which includes capital management and cybersecurity.
Evaluating infrastructure needs, the majority of trading firms begin with the vps vs dedicated server for trading choice dilemma. Both the mentioned solutions will suit for running automated trading approaches, market data processing and terminal remote trading. The actual choice will depend upon the demands of your workload, the allocation of the resources and the level of the necessary management of the environment. Trading several approaches within a single firm one can consider choosing dedicated servers for trading firms as the infrastructure option.
Trading infrastructure receives information permanently. Information comes in with broker connections, algorithms analyze situations and make conclusions about actions, which are executed via execution systems depending on some pre-set rules. Monitoring systems also track the activity of the system, control its functioning and trigger alerts for any necessary action.
Let us imagine a prop trading company with fifteen automated trading strategies using different currency pairs. All these strategies receive updates from the market, calculate indicators and interact with trading platforms. During economic events, the amount of received updates can be very high. If the hosting infrastructure is not able to process all the updates, the delays can appear.
Such delays negatively affect the functioning of the strategy. If the strategy is created to act in some situation in the market, it needs stable access to computing power.
The other thing to consider when planning infrastructure is the usual operations involved in a business. Updates, download of historical data, and reports consume certain resources. Without scheduling, performing such tasks may put additional load on live trading infrastructure. Thus, planning of infrastructure must be based on actual workloads rather than personal desire for a certain server.
A virtual private server creates an isolated environment within the host server. Virtualization software distributes computing resources between different virtual servers allowing multiple isolated environments to run on the same hardware.
For traders, a VPS allows running of automated trading strategies without handling the physical server. One is able to install trading platforms, set up remote access and manage applications which run during all trading days.
Three terminal users operating on the Metatrader platform can use a VPS service with sufficient RAM and processor power in addition to enough storage.
The advantages offered by VPS infrastructure services can come in handy in situations where a company needs to create a new virtual environment quickly. There is a possibility to run a different instance to test the strategy, update the software, etc.
Virtualization brings up an array of technical questions. The usage of resources is determined by the configuration used by the hosting company and may depend on how hardware will be distributed among the virtual machines.
There are several key technical issues that management teams need to consider when choosing VPS hosting:
All the above become especially critical when trading systems have to function after the office hours.
Dedicated servers allow use of the whole physical server machine that is assigned to one customer. The company can control its own operating system, resource allocation, and application rules. It is appropriate for trading firms with heavy loads or special needs.
Consider, for example, a quantitative trading firm with multiple execution engines and a market data collection system. This company will save incoming price data, calculate something, send signals to different internal applications.
This requires a lot of management. Management can allocate certain CPU cores to execution service, memory for data processing, and separate storage operations from time-critical applications.
Technical teams can have full control over such choices by using dedicated hardware. In another scenario, there is a corporation that operates its own risk management system. The software constantly checks positions, exposure, and the activity of traders against the limit set up by the firm. Having these functions run on controlled hardware enables administrators to develop system settings and maintenance strategies according to existing needs.
Dedicated hardware still needs to be managed. There are possibilities for failure of hardware, operating system security updates, and backup testing. The dedicated server does not necessarily ensure the continuity of work. It all depends on the quality of the data center, network, monitoring and recovery plans.
To decide whether to use VPS hosting or dedicated hardware, the participation of trading, technology, and risk management is essential. Each team recognizes a different aspect of the business environment.
The traders will recognize execution time-dependent strategies, developers will be aware of processing needs and software dependencies, and risk managers will determine acceptable downtimes and recovery needs.
These areas need to be covered in a structured assessment.
A helpful exercise is to analyze how the infrastructure performs throughout an intensive trading period. An example would be taking measurements for server usage throughout the period of a central bank release while also testing the application speeds of ingesting data.
This results in data that could be used for capacity planning. It will also help determine whether issues stem from local computing hardware, the broker connections, the application itself, or the network routes.
Specifically, latency is something to look out for. Depending on the distance between the server and the infrastructure of the broker, communication times can vary. It is advised to test the actual latency to the trading points of relevance and not just consider the infrastructure specifications of the hosting service. In the case of firms with various autonomous trading strategies, infrastructure partitioning may be required to avoid interference of one with the other.
The hosting process should not be limited to deploying a server. Trading systems grow, software needs vary, and loads increase when new strategies are introduced.
Conducting regular infrastructure audits will assist in pinpointing issues that might disrupt operations. A server constantly nearing its memory capacity may require some extra resources. Network connection issues can be discovered through recurring disconnections. Applications restarting unexpectedly require an official technical audit.
Ownership is necessary. There should be someone who would be in charge of alert management, approval of changes, backup handling, and incident coordination. Otherwise, infrastructure issues can be left unresolved even if monitoring tools spot them.
Realistic recovery plans are another requirement of trading firms. The backups must be secure, and testing of restoration must be done. Configurations, trading applications, and operational logs must be recoverable in case of failure.
The choice between vps vs dedicated server for trading is just part of the infrastructure strategy. VPS can run trading loads with clearly defined parameters, while dedicated servers offer precise control over system resources. Infrastructure planning begins with knowledge of business practices. Those firms that know their workloads, risks, and technical procedures have a good base for successful operation.
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