In the world of stock trading, latency – the delay between a trader’s action and the execution of that action – is a critical factor. High-frequency trading firms (HFTs), in particular, strive to minimise latency to gain a competitive edge. One technology that has dramatically reduced latency in stock exchange order transmission is the wireless microwave network.

How wireless microwave networks reduce latency

1. Direct line-of-sight transmission:
   Microwave networks transmit data through the air via high-frequency radio waves, requiring a direct line of sight between transmission points. Traditional fibre optic cables, on the other hand, often take longer, indirect routes to navigate around obstacles. The straight-line path used by microwave networks significantly reduces the physical distance data must travel, thereby decreasing transmission time.
2. Speed of signal:
   Microwave signals move through the air, which has a lower refractive index compared to the one of the glass where the light signals propagate in optic fibres. This means microwave signals encounter less resistance, maintaining higher speeds and reducing latency.
3. Optimised routing:
   Microwave networks are meticulously engineered to provide the shortest possible routes between key trading locations. By minimising the distance data must travel, these networks can significantly cut down on transmission time. This optimised routing is particularly beneficial for HFT firms, which require the fastest possible data transfer to execute trades more efficiently.

The impact of reduced latency

1. Competitive advantage in trading:
   For HFT firms, milliseconds matter. Reduced latency allows these firms to react to market changes faster than competitors, enabling them to capitalise on short-lived arbitrage opportunities. This speed advantage makes having the lowest latency a crucial component of their trading strategies.
2. Market efficiency:
   Faster data transmission and order execution contribute to more efficient markets. When traders can execute orders quickly, it leads to more accurate and timely pricing of securities, benefiting all market participants. This efficiency helps narrow bid-ask spreads and enhances overall market liquidity.
3. Risk management:
   In volatile markets, the ability to execute orders swiftly can mitigate risk. Reduced latency allows traders to respond more quickly to market movements, adjusting their positions to manage risk more effectively. This capacity for rapid response is particularly important during periods of high volatility or market stress.

Wireless microwave networks have revolutionised the transmission of stock exchange orders by significantly reducing latency. Through direct line-of-sight transmission, faster signal propagation and optimised routing, microwave networks provide a critical advantage in the high-speed world of financial trading. 

As technology continues to advance, these networks are likely to play an even more pivotal role in the financial markets, driving further innovations and efficiencies.

See how the Euronext Wireless Network (EWiN) harnesses microwave technology

Moneyness is the relationship between the strike price and the market price of the underlying asset during the lifetime of an option. Learn about the difference between ‘at the money’, ‘in the money’, and ‘out of the money’ and what each term means. 

Moneyness explained in detail

At-the-money

An option is referred to as “at-the-money” when its strike price is equal to the (future) price of the underlying value (future = spot price + interest over the life time – dividends paid during the life time).

In-the-money

A call option is referred to as “in-the-money” when its strike price is below the (future) price of the underlying value. A put option is referred to as “in-the-money” when its strike price is above the (future) price of the underlying value.

Out-of-the-money

A call option is referred to as “out-of-the-money” when its strike price is above the (future) price of the underlying value. A put option is referred to as “out-of-the-money” when its strike price is below the (future) price of the underlying value.

Moneyness, call vs put

When a call option is in-the-money, then a put option of the same series is out-of-the-money, and vice versa.

Option valuation based on intrinsic value, volatility and moneyness

The option premium consists of two components, intrinsic value and time value. The time value is highly dependent on the time-to-maturity, the price volatility of the underlying asset and on the moneyness of the option series. Generally, the higher the price volatility, the higher the time value. Also, the longer the time-to-maturity, the higher the time value. When comparing options with an identical underlying value and time-to-maturity, at-the-money options have the highest time value.

In this monthly video programme, Mathieu Caron, Group Head of Primary Markets at Euronext, takes us to the heart of the financial markets: how does the exchange play a key role in the rise of non-financial data?

Discover the "My ESG Profile" initiative and its ambitions, as well as the origin and update of the data, with insights into their integration into investment strategies and the future evolution of this initiative.

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In this new edition of "La Bourse selon Euronext", Vincent Boquillon, Head of Equity Trading at Euronext, discusses stock market activity in the European equity market, highlighting its characteristics and strengths compared to the US and what Euronext is doing to make it attractive. 

He also explains the concept of best execution and how Euronext contributes to it through its dedicated service, Best of Book.

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In this monthly video programme, we dive behind the scenes of the financial markets with Aurélien Narminio, Head of Equity Listing at Euronext. 

• What is the role of tech at Euronext? 
• How does the exchange support the growth of European tech companies? 

Discover the Euronext Tech Leaders initiative, which aims to highlight Europe's tech leaders, their different business profiles, and the performance of the Euronext Tech Leaders index since its creation in 2022.

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