Post by Patrick Michelberger
The radio frequency (rf) range is one of the most technologically exploited portions of the electro-magnetic spectrum. Although the definition is not strict, the rf spectrum commonly refers to waves with frequencies between 20 kHz and 300 GHz. This also includes microwaves, which have frequencies stretching from 300 MHz to 300 GHz. Rf technology was discovered in the early days of modern physics, and it quickly became the cornerstone of mass media broadcasting. Unlike optical signals at higher frequencies, rf waves are generated with electronic circuits comprising a capacitor and an inductor. In these so-called LC circuits, electronic charge carriers can be made to oscillate and, as a consequence, emit electromagnetic radiation at the desired frequency. The faster the oscillation and the smaller the corresponding circuit, the higher the frequency of the emitted waves; amplitude and frequency modulation of the produced waves enables the encoding of information.
Today, nearly all of the rf region plays a role in some form of human communication. Waves in the low (below 30 kHz) to middle (below 300 kHz) range, for instance, bend around the earth and penetrate deeply into water: they are used to contact submarines and set radio clocks. Other well-known examples are television and mobile phone signal transmission, which relies on waves at higher frequencies (below 3 GHz). In the latter – densely populated – portion of the rf spectrum, a recent switch from analog to digital television (which is less demanding in terms of bandwidth) has freed up some bandwidth for mobile data services. Until the 1980s, transmission lines for large amounts of data – the backbones of communication networks preceding the internet, in a sense – operated on microwave links (corresponding to frequencies below 300 GHz). This changed with the advent of solid-state lasers and optical fibres: thanks to the larger bandwidth offered by short laser pulses, optical fibre networks are now the prime technology for the internet. As a result, microwaves seem to have gone somewhat out of fashion – or have they not?
In fact, microwave links have recently enjoyed a revival of interest thanks to a lucrative application known as high-frequency trading. In this area of finance, profit derives from a speed advantage in buying and selling financial instruments such as stocks and currencies. For instance, high-frequency traders will try to profit from small discrepancies on the prices for a single asset traded on different trading venues: if you buy at the cheaper venue and ‘simultaneously’ sell at the more expensive one, you will make a positive return. This sounds surprisingly simple, yet such trading strategies strictly require fast access to both venues in order to detect an opportunity and exploit it before anyone else does. Standard optical fibre networks do not live up to this tight requirement, mainly because fibres do not necessarily run in straight lines between venues such as stock exchanges – for which reason light pulses have to travel additional distances and pick up undesired time delays. Even if there were direct connections, optical fibres’ higher refraction index means that light travels through fibres 1.5 times slower than microwaves propagate in air. To ensure an advantage in this high-stakes game of micro- and nano-seconds, traders have thus reverted back to building private direct microwave links between exchanges: examples of existing links can be found between London and Frankfurt or between Chicago and New York. So beware – never underestimate the reach of radio waves.
Associate Director – Quantitative Research
Record Currency Management
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