Trading Computer – Internet Speed Requirements and Network Considerations

Introduction

As a day trader, one of the biggest priorities for your trading computer setup should be to have a decently fast and ultra-reliable internet connection. Your internet connection is your lifeline to the outside world. A really serious day trader may even consider setting up a backup internet connection for use in emergencies (having a wifi card in your desktop trading PC is a great option here as you can connect to your cell phone’s hotspot in a pinch). If your internet fails in the middle of a trade, it can spell disaster, especially if you don’t have any limits in place to stop runaway trades. Of course, there are techniques to mitigate internet issues, but the trade-off to these techniques is that the costs will affect your ability to trade at the best prices possible.

Slippage and Latency

One trading concept you may already be familiar with is slippage. Slippage occurs when there is a “difference between the expected price of a trade and the price at which the trade is executed”. The pricing data for trades is stored on the broker’s servers which your computer has to pull from. If your computer tries to pull prices and any data is missed (perhaps due to an unreliable connection), that data must be re-sent which increases the amount of time needed to update the price. By the time your trade gets executed, the price may have changed without being displayed properly, and the trade may no longer be favorable for you. In the tech world, the time that it takes for data to go to and from your computer to a server is what we call “latency”. As it pertains to trading, more latency will lead to a much greater chance of slippage, so we want to reduce latency as much as possible. The network latency on your PC can be measured with tests and will provide you with a ‘ping’ value, measured in milliseconds (ms).

WiFi vs. Ethernet

So we understand that a reliable internet connection is key, now what? The first thing we should note is that a ethernet is far preferable over a WiFi connection for trading. WiFi signals are prone to losing connection randomly due to poor connectivity, crowded wireless signals in your area, and any number of reasons, whereas a hardwired ethernet connection provides the most stable and reliable connection possible. It’s best to completely avoid WiFi and opt for a hardwired ethernet connection. A WiFi connection will essentially always have more latency than an equivalent wired connection on the same network.

Below is a Cat5 cable which is the common type of cable that connects your computer to your router and allows for a hardwired internet connection over ethernet. This is what our ideal cable looks like.

All said, if you are absolutely forced to use WiFi and cannot use a hardwired connection, you’re going to need a top of the line 802.11ax WiFi 6 card, which is the fastest type of WiFi card available today. If you check the back of your router (the box your ISP gave you), it should have one or more ethernet ports on it that you can connect a Cat5e or Cat6 cable to. It isn’t terribly expensive to have an electrician route an ethernet cable through a few walls in your home or office either, if needed, to provide your PC with ethernet access when your router is located in another room.

Speedtesting

So now let’s say you’ve got your computer and you want some concrete information about how your connection is going to hold up. You can run a simple speed test to figure those numbers out quickly and for free. You can do a speed test for free by going to www.speedtest.net (you can use alternatives but you should always use the same service to compare results). Click on the ‘Begin Test’ button and wait about 30 seconds to receive your results. 

You’ll get 3 important results, underlined in red:

• Ping
• Download speed
• Upload speed

The ping is a measure of latency that represents the amount of time in milliseconds it takes your computer to send and receive a simple round trip message with a nearby local server. You want your ping to be as low as possible for optimal trading performance. Simply put, a lower ping means that the data you send across the internet will reach its destination faster. A ping of under about 15 ms should be great for trading and under 10 ms would be excellent. Next, come the download speed and the upload speed which we’ll cover in more depth in the Traffic and Trading section.

Internet Service Providers and Hardware

Before we get too far, let’s talk about “Internet Service Providers” or ISPs and “Bandwidth”. Here we’ll be assuming you’ll have good hardware. Our motherboards come with excellent network cards and you’ll be doing just fine if you rent a router and modem or router/modem combo box from your ISP or buy one of the cheaper routers and modems off of this router list and this modem list or similar. If you’re feeling unsure, you’ll likely want to just rent from the ISP as they may only provide installation with their hardware. With that assumption made, the download and upload speeds you’re able to achieve are going to be largely determined by your ISP. The speed of the connection your ISP provides will be largely dictated by your “Bandwidth”. So what is bandwidth exactly?

The “Highway” Metaphor

Generally speaking, bandwidth is the basically the maximum rate of data transfer across your connection. If you think of your internet connection as a highway, (there’s a reason we call it internet traffic) the latency will relate to the speed limit and the bandwidth will relate to the number of lanes. If there are just a few cars on the road, all of the traffic will be able to go the speed limit, but adding more lanes (or bandwidth) will not improve the speed limit (latency).

However, adding lanes would improve the speed with which the cars can actually reach their destination if there’s already too much traffic on the road. That’s where upload and download speeds come in. Upload and download speeds are measured in Mbps or Megabits per second. A “bit” or binary digit is the smallest possible unit of data that computers use to operate and one million bits makes up a Megabit. In our highway example, each bit is a car and so the download and upload speeds on our colossal data highway are measured in millions of cars per second.

The speed that your ISP advertises that you’ll get from their connection is going to be closely related to the bandwidth they’ve allotted you. When you test your internet speed, you’ll want to shoot for download speeds of at least 20 Mbps and upload speeds of at least 5 Mbps. Depending on your geographical area, that may or may not be an option as internet speeds tend to vary wildly. But these are good goals to have in mind if you are deciding whether or not to upgrade your service if you have the option.

Traffic and Trading

Luckily, trading involves relatively small data exchanges that will only ever require a few Kilobytes of data at most. It’s mostly imperative that you have enough bandwidth to handle other traffic coming over your network such that your critical data is able to get where it needs to go without having to compete. This concept drives the reasoning behind our baseline upload and download speeds (20 Mbps down, 5 Mbps up). Generally speaking, these are the speeds required for general internet browsing to be done without trading being affected during normal use. Additionally, you should be aware that there are some more advanced networking techniques to the tune of certain settings, software and routers that can help prioritize your trading-related traffic, but those are beyond the scope of this post.

Summary

To sum up, a decently fast yet ultra-reliable internet connection is key to day-trading. The most straightforward way to accomplish this is with a hardwired internet connection, a decent router, a good network card (which we’ll ensure) and a conversation with your internet service provider. Speed test your connection and shoot for a ping below 15 ms, a download speed above 20 Mbps and an upload speed above 5 Mbps.

We hope you enjoyed this guide. If you have further questions about configuring a new day trading PC, please see our trading PCs below, or contact us here for a personalized trading PC quote.