Low Latency Optical Networks for High-Frequency Trading

What Is High-Frequency Trading?

High-frequency trading uses sophisticated algorithms and high-performance computing systems to analyze market information and execute trades at extremely high speeds.

Trading systems may process enormous volumes of market data from multiple exchanges and liquidity venues. Algorithms identify opportunities, determine whether to execute a transaction, and transmit orders—often within microseconds.

Because the potential profit from an individual transaction can be extremely small, firms compete aggressively on execution speed, reliability, and consistency.

This is why HFT firms invest heavily in:

• Exchange colocation
• Ultra-low-latency fiber routes
• Dark fiber
• Dedicated wavelength services
• DWDM systems
• High-performance optical transceivers
• Low-latency switching and routing
• FPGA-based processing
• Precision timing
• Network monitoring and telemetry

In this environment, the network itself becomes part of the trading strategy.

Why Optical Network Latency Matters in HFT

Consider two trading systems receiving the same market information.

If one system can receive the information, process it, and transmit an order several microseconds before the other, that difference can potentially determine which system reaches the market first.

For this reason, HFT network architects examine latency at multiple levels.

The major contributors include:

1. Propagation delay through the fiber
2. Optical and electrical processing
3. Dispersion compensation
4. Transceiver and forward-error-correction processing
5. Switching and routing
6. Queuing
7. Network architecture
8. Physical route length

The result is an important principle:

Reducing latency requires optimizing the entire path—not simply purchasing faster equipment.

How Much Latency Does Optical Fiber Add?

The speed of light in a vacuum is approximately 299,792 km/s. In conventional silica optical fiber, the propagation speed is lower because of the fiber’s refractive index.

For typical single-mode fiber, this results in approximately:

That may sound insignificant.

For an HFT network, it isn’t.

A 100-km fiber route can introduce approximately 500microseconds of one-way propagation delay before accounting for the additional latency associated with network equipment and optical processing.

A longer physical route can therefore erase the advantage gained from faster switching, processors, or transceivers.

The Shortest Route Often Wins

This is why financial networks place enormous importance on route engineering.

A network provider may spend considerable resources creating a physically shorter fiber route between two financial centers because reducing the distance directly reduces propagation latency.

Examples of important financial connectivity corridors include:

• New York ↔ Chicago
• London ↔ Frankfurt
• London ↔ Paris
• London ↔ Amsterdam
• Tokyo ↔ Osaka

In these environments, the difference between a physically optimized route and a conventional route can translate into meaningful latency differences.

Hollow-Core Fiber: Changing the Latency Equation

One of the most significant developments in low-latency optical networking is hollow-core fiber (HCF).

Conventional optical fiber guides light through a solid glass core. Hollow-core fiber instead guides light through a hollow region, allowing the optical signal to propagate primarily through air.

Because the effective group index can approach that of air, hollow-core fiber can significantly reduce propagation delay compared with conventional silica fiber.

Current industry and research results indicate that HCF can provide roughly 30% lower propagation latency than conventional single-mode fiber, although the exact improvement depends on the fiber design and deployed route.

This is potentially transformative for applications where every microsecond matters.

Hollow-Core Fiber Is Moving Toward Commercial Deployment

Hollow-core fiber is no longer purely a laboratory technology.

The industry is now investing in manufacturing, testing, and commercial deployment. Prysmian, for example, has invested in scaling hollow-core fiber technology and has specifically identified applications including high-frequency trading and AI infrastructure.

Industry activity has also expanded into testing and certification. VIAVI introduced a long-range hollow-core fiber testing and certification solution in 2026, reflecting the need for specialized measurement techniques as HCF deployments increase.

Research published in 2026 is also showing that the benefits of HCF extend beyond propagation speed. Modern hollow-core designs can offer substantially lower chromatic dispersion and optical nonlinearity than conventional silica fiber.

For financial networks, however, the most immediately compelling benefit remains simple:

Dispersion Compensation and Latency

Chromatic dispersion occurs because different wavelengths of light propagate at slightly different velocities through optical fiber.

Over long distances, dispersion causes optical pulses to spread and can limit transmission performance.

Historically, dispersion-compensating fiber (DCF) was commonly used in DWDM systems to counteract chromatic dispersion.

The problem for low-latency networks is that DCF adds additional fiber—and therefore additional propagation delay.

Modern optical networks increasingly use other approaches, including:

• Fiber Bragg Grating (FBG) compensation
• Low-dispersion fiber designs
• Coherent optical transmission
• Electronic dispersion compensation
• Digital Signal Processing (DSP)

Coherent optical systems can perform dispersion compensation electronically, reducing the need for long lengths of dispersion-compensating fiber.

For latency-sensitive applications, this can simplify the optical path while reducing unnecessary physical distance.

Reducing Optical-Electrical Conversions

Another important source of latency is the processing that occurs when signals move between optical and electrical domains.

Traditional DWDM architectures may use separate transponders between routers and the optical transport system.

Each additional processing stage can contribute latency and complexity.

This is one reason IP over DWDM (IPoDWDM) has become increasingly important.

With IPoDWDM, coherent optical interfaces can be integrated directly into routers and switches, allowing IP traffic to connect directly to the optical transport layer.

This can eliminate intermediate equipment and reduce the number of optical-electrical-optical conversions.

400ZR and Coherent Pluggables

Modern coherent pluggables such as 400ZR and 400ZR+ are particularly important in this evolution.

Originally driven largely by cloud and data center interconnect requirements, coherent pluggables provide high-capacity optical transmission in compact modules that can be inserted directly into networking equipment.

For low-latency applications, their importance goes beyond bandwidth.

They can help network architects:

• Reduce equipment layers
• Simplify optical architectures
• Eliminate unnecessary transponders
• Reduce O-E-O conversions
• Deploy direct optical connections
• Improve network scalability

The result is a shift toward simpler optical paths with fewer opportunities for unnecessary processing delay.

Dark Fiber vs. Wavelength Services for HFT

HFT networks frequently use dedicated connectivity rather than conventional shared services.

Two important options are dark fiber and managed wavelength services.

Dark Fiber

With dark fiber, the customer controls the optical transmission equipment placed on the fiber.

This provides considerable control over:

• Optical technology
• Transceivers
• Wavelengths
• Network architecture
• Capacity
• Upgrade strategy

Dark fiber is particularly attractive when a trading firm requires maximum control over the optical path.

Wavelength Services

A wavelength service provides a dedicated optical channel over a provider’s network.

This can provide a lower operational burden while still delivering dedicated bandwidth and a predictable optical path.

For latency-sensitive applications, the critical consideration is not simply whether the service is dark fiber or wavelength.

The important question is:

A short, direct wavelength can be preferable to a longer dark-fiber route, depending on the architecture.

Designing a Low Latency Optical Network for HFT

Building a low-latency network requires optimization across several layers.

1. Minimize Physical Distance

The first rule is simple:

Every additional kilometer introduces propagation delay.

Route engineering should therefore consider actual fiber distance rather than simply geographic distance.

2. Select the Right Fiber

For latency-sensitive routes, network architects may evaluate:

• Conventional low-loss single-mode fiber
• Low-latency fiber designs
• Non-zero dispersion-shifted fiber
• Hollow-core fiber

Hollow-core fiber becomes particularly attractive where the value of latency reduction justifies the additional deployment and testing requirements.

3. Minimize Optical Components

Every active component can introduce additional processing or propagation delay.

Low-latency architectures therefore attempt to minimize:

• Regenerators
• Unnecessary ROADMs
• Intermediate transponders
• Optical-electrical conversions
• Excessive switching stages

The goal is a short, simple, deterministic optical path.

4. Optimize Dispersion Management

Network designers must balance transmission performance against latency.

Instead of automatically adding dispersion-compensating fiber, modern systems can use:

• Coherent DSP
• Electronic dispersion compensation
• FBG-based compensation
• Appropriate fiber selection

5. Optimize Switching and Routing

Latency doesn’t stop at the optical layer.

HFT networks can also use:

• Cut-through switching
• Hardware timestamping
• FPGA-based packet processing
• Low-latency network interface cards
• Precision Time Protocol (PTP)
• Deterministic routing

The objective is to reduce both average latency and latency variation (jitter).

Latency vs. Bandwidth: More Capacity Doesn’t Always Mean Lower Latency

It is easy to assume that upgrading from 100G to 400G or 800G automatically makes a network faster.

That isn’t necessarily true.

Higher-capacity optics allow more information to be transmitted per second, but they do not fundamentally change the propagation speed of light through conventional glass fiber.

A 100G optical signal and an 800G optical signal traveling over the same physical fiber still encounter essentially the same propagation delay.

This distinction is particularly important when designing HFT networks.

Bandwidth determines how much information can be transported.

Latency determines how quickly information travels from one point to another.

A network can have enormous bandwidth and still have poor latency performance if the physical route is too long or the architecture contains unnecessary processing stages.

The Emerging Role of AI and 1.6T Optical Technology

The rapid growth of AI infrastructure is accelerating development of optical technologies that could eventually influence financial networks.

The industry is moving beyond 800G toward 1.6T optical connectivity, driven primarily by the enormous bandwidth requirements of AI data centers.

In March 2026, Marvell announced an expanded 1.6T optical DSP portfolio supporting the industry’s transition from 800G toward 1.6T connectivity.

Silicon photonics and advanced optical engines are also being developed to reduce power and improve high-bandwidth interconnect performance. Marvell demonstrated a 1.6T silicon-photonics light engine at OFC 2025, while the broader industry continues to investigate increasingly integrated optical architectures.

These developments are primarily aimed at AI and data center networks rather than HFT.

However, the underlying technologies—higher-speed optical interfaces, better DSPs, silicon photonics, lower-power optical engines, and tighter integration—can eventually influence other latency-sensitive networking environments.

Low Latency Is Becoming a Cross-Layer Engineering Problem

The most important change in low-latency networking is that optimization is no longer confined to the fiber itself.

Modern networks require engineers to consider the entire path:

A few microseconds saved at one layer may be meaningless if another layer introduces substantially more delay.

This is why successful low-latency network design requires collaboration between:

• Optical engineers
• Network architects
• Data center engineers
• Systems engineers
• FPGA developers
• Trading application teams

The network must be engineered as an integrated system.

The Future of Low Latency Optical Networks

The next generation of financial networks is likely to combine several technologies rather than rely on a single breakthrough.

These may include:

• Hollow-core fiber for premium long-distance routes
• High-capacity coherent pluggables
• IP over DWDM
• 400ZR and 400ZR+ architectures
• Increasingly sophisticated optical DSPs
• 800G and 1.6T interfaces
• Silicon photonics
• Low-latency switching
• FPGA-based processing
• Precision timing
• AI-assisted network monitoring and optimization

Hollow-core fiber is particularly interesting because it challenges one of the fundamental assumptions behind conventional optical network design: that transmission must take place through solid glass.

Recent research and commercial development suggest that HCF is moving toward a more mature deployment phase, although manufacturing, testing, economics, and network integration remain important considerations.

The Bottom Line: Every Microsecond Starts with the Optical Path

High-frequency trading networks operate in an environment where extremely small differences can matter.

That makes low latency optical network design fundamentally different from simply building a high-capacity network.

The engineer must consider:

• The physical distance between endpoints
• The propagation characteristics of the fiber
• Dispersion management
• Optical amplification
• Transceiver processing
• O-E-O conversions
• Switching and routing
• Network architecture
• Jitter and timing

And perhaps most importantly, the engineer must understand which factors can actually be changed—and which are constrained by physics.

Hollow-core fiber represents one of the most significant opportunities to reduce propagation latency. Coherent pluggables and IP over DWDM can simplify the optical architecture. Higher-speed 800G and 1.6T technologies are increasing capacity, while advances in silicon photonics and optical DSPs are changing how optical systems are integrated.

But the fundamental principle remains:

The shortest, simplest, and most predictable optical path is usually the foundation of a low-latency network.