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What is Colocation Server Hosting?

12th Mar 2024

Colocation server hosting refers to a service where a business can rent space for their servers and other computing hardware within a data centre facility. Rather than building and maintaining their own server room on-site, colocation allows companies to house their equipment in specialised facilities that provide resilient power, cooling systems, physical security, and network connectivity options.

When using a colocation provider, businesses only pay for the space, power, and interconnection services they actually use each month, reducing capital expenditures and shifting costs to an ongoing operating expense.

Read on to learn what is colocation server hosting, why use colocation services, and the benefits of colocation. We’ll also explore applications of colocation services. 

What Does Colocation Hosting Mean?

So, what is colocation hosting? Colocation hosting refers to renting space for servers and other computing hardware within a specialised third-party data centre facility. Under the server colocation hosting model, the customer provides their equipment, and the colocation hosting provider offers a climate-controlled, highly connected place for it to reside.

Below, we’ll cover how colocation works:

Maintain Complete Control Over Your Hardware

With colocation hosting, businesses purchase and maintain their own servers, networking switches, firewalls, load balancers, and any other gear needed to deliver IT applications and services.

The customer has full access to manage and configure their equipment as required. A server colocation facility will provide space, power, cooling, and network links while clients handle patching, upgrades, replacement of bad drives or parts, reboots, operating system and software maintenance.

Colocation Facilities Offer Resilient Infrastructure

While clients must manage their own gear, colocation providers offer robust underlying infrastructure to support constant operation.

Colocation data centres supply several reliable features, including backup generators, battery or diesel UPS systems, cooling failover mechanisms, fire suppression, monitored access points and more.

These capabilities allow colocated hardware to remain available through a power outage and other incidents.

Interconnection Services Facilitate Fast Data Access

In addition to reliable floor space and power delivery, colocation hosting services enables direct, low latency data access needed for today’s applications.

Many colocation providers offer highly efficient network connectivity via fibre links, support for dense cross connects between customers, route redundancy, and partnerships with major ISPs and public cloud services.

This facilitates fast system performance and disaster recovery protections between customer-managed platforms.

Colocation vs Managed vs Cloud Hosting

Colocation hosting, managed services hosting, and cloud hosting represent three major methods of deploying IT infrastructure and applications. They differ significantly in how hardware is provided and managed:


  • Purchase and maintain your own servers, storage, and networking equipment.
  • The colocation facility provides secure, highly reliable space for customers’ hardware.
  • Have full control and responsibility over your hardware.
  • Handle all the management and maintenance of your operating systems, software, upgrades, etc.
  • It is ideal for workloads that require customisation or proximity to other infrastructure.

Managed Hosting

  • Lease full-stack infrastructure from a provider.
  • The managed services company owns space within the data centre facility and the hardware used.
  • Provider engineers maintain, monitor, optimise, and repair all hardware.
  • You manage your operating systems, applications and software.
  • It simplifies deployment by outsourcing hardware management.

Cloud Hosting

  • Subscribe to shared compute resources delivered by a public cloud platform.
  • All hardware and facilities are owned and operated behind the scenes by the cloud provider, and customers don’t have their own data centre.
  • It allows speedy deployment with no hardware investment needed.
  • It fully manages dynamic infrastructure with consumption-based pricing.
  • It enables automation and resilient architectures.

Types of Colocation Hosting

There are a few primary ways that server colocation hosting can be deployed, with different levels of management and flexibility offered by the colocation hosting providers. Below, we’ll address the difference between dedicated hosting and colocation hosting:

Shared Colocation Hosting

In retail or shared colocation, businesses rent individual cabinets or racks within a large shared data hall occupied by other customers’ servers as well. The facility supplies reliable power, cooling systems, security and networking resources that support all of the equipment in the building. However, multiple colocation clients access the same room.

This open layout generally offers more flexibility and reduced costs if no regulatory mandates require dedicated space.

However, there are some downsides to shared server colocation:

  • Less isolation: Servers and network gear reside in the same room as other companies. This may not suit security-sensitive organisations that want to ensure secure data. Though cabinets can be locked, the hall is continuously accessible to other customers and facility technicians.
  • Lower control: In shared colocation, you must adhere to standard data hall conditions and have less influence in customising the environment’s temperature, humidity, access restrictions, and more. Dedicated hosting spaces allow more control.

Dedicated Colocation Hosting

Dedicated hosting includes leased cages, private suites, or a hall for one customer’s servers. It offers guaranteed capacity, increased customisation of the environment, strict access restrictions to just your gear, and added compliance assurances around data privacy.

However, dedicated colocation hosting also has its disadvantages around inflexibility and costs:

  • Higher costs: Dedicated colocation spaces have minimum capacity commitments and cost significantly more than shared hosting. You pay for unused reserved resources.
  • Longer lead times: Large dedicated environments require extensive planning and take longer to construct before migration compared to quickly onboarding into shared colocation hosting.

A colocation provider may make both options available to accommodate projects with different budgets and isolation requirements.

Applications of Colocation Hosting

Colocation hosting is used by many types of organisations and businesses that need a private, highly reliable space for IT infrastructure. Typical colocation customers include:

Small Businesses

Small businesses colocate individual servers for critical systems like business file storage and backup, email, ERP and CRM, databases, and websites to achieve stability, security, and fast network access they wouldn’t be able to support internally.

Financial Firms

Banks, investment companies, lenders, and trading houses colocate infrastructure for linking branch locations, running market data analysis, and algorithmic trading platforms that require low latency pathways to exchanges.

E-Commerce Retailers

Online stores base web and database servers in colocation to stay operational 24/7/365 to fulfil orders and allow remote management while giving developers and IT staff secure physical access whenever necessary.

SaaS Application Providers

Hosted app vendors maintain fleets of servers to deliver innovative new software services to external customers from within interconnected colocation facilities.

Media Firms

Media production houses and entertainment companies leverage colocation hosting for distribution hubs to process massive volumes of content while distributing it globally from inside carrier hotels.

Healthcare Organisations

Hospitals utilise colocation to store patient records, images, and backups locally while ensuring regulatory compliance around privacy and access controls that are not possible in public cloud services.

The common theme across these colocation users is the need to physically control hardware without real estate or facility overheads.

Benefits of Colocation Hosting for Finance & Capital Markets

Colocation services offer a number of advantages for banks, trading firms, investment companies, and other capital market participants such as exchanges and brokerages. These are some colocation benefits:

Ultra Low Latency Connectivity

Financial markets involve extremely time-sensitive transactions and data flows. Therefore, UK server colocation facilities catering to capital market participants focus intently on providing the fastest possible connectivity.

Additionally, by leasing data centre space interconnected via fibre optic cables that carry high gigabit speeds, the latency between the colocation site and trading venues or counterparty infrastructure can be reduced to microseconds.

High-frequency trading algorithms rely on these tiny increments of time to react to market data and submit profitable orders.

Enhanced Security

Security is crucial across banks, trading firms, and investment companies seeking to protect sensitive customer data, transaction history, trading strategies and more.

Colocation hosting facilities catering to financial sectors implement robust access, surveillance, infrastructure protections, and compliance controls to satisfy security-conscious organisations.

Leading colocation providers also feature multiple authentication barriers using biometrics and smart cards, restricting data centre access only to approved customer representatives.

Cost Effective & Increases Energy Efficiency

A colocation service creates significant cost savings for a business. Server colocation facilities allow financial organisations to optimise IT spending and better scale to meet dynamic business needs.

Rather than costly capital expenditures to construct on-premises data centres, colocation offers an affordable model around only the space and power actually utilised each month.

For example, trading algorithms may demand 40 or more dedicated servers during peak hours, then trim to 10 servers overnight. A colocation hosting service seamlessly adapts usage to minimise waste.

Proximity to Financial Exchanges

To enable the fastest trades, some leading colocation data centres are located directly inside the buildings of major stock exchanges like NYSE and NASDAQ or alternative trading systems (ATS).

This means trading firms can rent cabinet space and run infrastructure literally on the same campus as the trading venues. By minimising the distance data needs to travel between servers and the matching engines executing trades, latency is further slashed.

Trading algorithms hosted in a colocation hosting server inside the exchange can react in microseconds to incoming market data and submit transactions back to the venue across the hall almost instantly.

Strong Ecosystem of Financial Participants

A leading colocation provider catering to financial sectors might host a diverse range of capital market participants within the same building or campus. This includes major banks, hedge funds, trading firms, brokers or dealers, data feed providers, exchanges, and investor companies that offer other services.

By colocating alongside other trading counterparties and financial infrastructure players, connectivity is streamlined. This may also link colocation customers directly to one another over fibre to enable low latency transactions.

Regulatory Compliance

The financial industry must adhere to strict regulations around data security, privacy, and proper electronic trading practices. Selecting a colocation provider with experience supporting compliance needs can better position organisations to address relevant governance.

Many leading colocation data centres obtain rigorous certification for information security controls like SOC2 and ISO 27001. These audited policies for physical access, surveillance, redundancy, availability, staff controls, and subcontracting help satisfy financial examiner expectations.

Additionally, colocation hosting offers choices in terms of environment dedication. For example, rather than a shared hall with other firms’ infrastructure, banks can opt for fully enclosed cages or private locked suites, isolating their systems for tighter data governance.


Financial trading ecosystems see tremendous spikes in data and transaction volume during peak periods such as market opens and closes, earnings seasons, or volatile events. The underlying algorithms, risk calculations, and order management must scale out instantly to cope.

Colocation facilities offer simplified capacity expansion that is critical for handling finance workloads. Whether it is bursts in market data feeds, transaction messaging, or analytical work, additional compute and storage can get rapidly deployed within the same data centre.

Disaster Recovery & Business Continuity

Colocation facilities help financial firms stay running even when major problems hit their main offices and data centres.

Colocation sites have reliable power supplies, backup generators, and cooling systems with multiple layers of redundancy. This allows client’s critical servers placed in colocation to stay operational through extreme weather, fires, or a power outage that could disrupt their headquarters.

Additionally, colocating trading servers and data backups in a separate facility across town ensures geographic diversity from a bank or trading firm’s main buildings. If something catastrophic happens at their primary physical location, key systems preserved offsite in the colocation site can get brought online rapidly.

Better Performance

Colocation data centres provide much faster performance for financial companies’ important IT systems compared to hosting servers themselves.

By renting space inside specialised facilities, banks and trading firms locate their servers, databases, and platforms closer to financial exchanges and partners. This allows speedy connectivity and high bandwidth through dedicated fibre optic cables between the colocation building and those key destinations.

Additionally, advanced networking switches inside colocation sites offer more bandwidth and newer technologies than typical corporate networks. They can handle huge data flows with very minimal delays.

Choose Beeks’ Colocation Hosting & Trading Infrastructure Solutions

Beeks is one of the leading global colocation providers that offers colocation hosting services for the capital markets and financial enterprises industry.

Beek has data centres in key global financial locations such as New YorkLondonChicagoTokyo and other worldwide locations. This solution enables high scalability and resilient performance. We also monitor infrastructure and conduct maintenance with a remote hands service.

We offer ISO 27001 certification to data security standards, self-service management portals, pre-built cross connects, and ultra-low latency networks near key financial exchanges. This gives financial institutions an optimised, compliant colocation ecosystem with robust data security to support latency-sensitive platforms.

Have further queries about what is colocation server hosting? Want to learn about how our colocation hosting services can support your business needs? Contact us at today.

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