Colocation (or Colo) often refers to creating a shared facility to house many people or businesses’ specialized hardware and IT equipment.
Colocation in high-frequency trading (HFT) refers to a designated area within a data center owned by stock exchanges. Its main objective is to place HFT traders’ and companies’ computers in the same building as the servers for the stock exchange.
As a result, HFT firms and traders are able to obtain current market pricing before the general public. While the advantage is just nanoseconds’ order, HFT firms spend millions of dollars on it.
In other words, high-frequency traders can benefit from colocation by placing their computers close to the stock exchange servers.
In the last decade, the idea of colocation has gained popularity and given rise to a brand-new industry. For example, some contend that the expansion of data centers by stock traders near critical stock exchange servers is due to the rising demand for colocation services.
