High frequency traders (HFTs) have long relied on trading strategies involving colocation, the practice of locating the trading servers in close proximity to the exchange data. Colocation plays a crucial role in modern capital markets by facilitating faster and more efficient trading. For exchanges, it offers a revenue stream through fees charged for access to colocation facilities, as well as enhancing market quality and efficiency by attracting HFT firms and other high-volume traders.

The promise of moving colocation to the cloud, however, is simply not there yet. Much more investment by cloud providers needs to take place in terms of hardware and networking, all aimed at optimising low-latency performance, compliance and security. Once the market for cloud-based colocation becomes more efficient, costs will hopefully fall to a more reasonable level.

Likewise for multicast, the protocol that simultaneously delivers data to multiple clients ensuring low-latency updates with real-time market information. But here again, the ability to reach low latency levels remains a serious concern. The solution would be for cloud providers to manage connections between participants within the same cloud so they can achieve low latency speeds granted by proximity. This could be achieved by cloud providers selling a hosting solution, although this has not yet taken place. The solution in this case, pertains to a business model, rather than a technical solution.