Laser beams and microwave dishes are the latest weapons in an arms race to shave milliseconds off dealing times in the shadowy world of high speed, computerized financial trading.

Traders, who make money by exploiting tiny, lightning-fast price changes on exchanges are now targeting Europe and Asia after skirmishing in the U.S.

The first microwave connections between London and Frankfurt have been launched, cutting the time to send a trade by about 40 percent compared with fiber optic cables.

Behind the scenes, rivals are also racing to trim thousandths of seconds from routes to Moscow, Hong Kong and Tokyo, while also scrambling to find new technologies, including the use of drones as platforms for wireless links.

The race to transmit at nearly the speed of light comes as regulators in Europe and the U.S. debate cracking down on a sector accused of increasing market volatility and multiplying the risk of a market meltdown.

Investors have blamed high speed traders for exaggerating market movements—including the biggest-ever daily plunge in gold last month—while ethical issues have been raised at a time when the reputation of the financial sector as a whole is under scrutiny as a result of scandals such as banks rigging the Libor interest rate benchmark.

(Read More: Recent Libor Settlements Are Just Tip of the Iceberg)

But such questions are not dampening fierce competition among traders and their communications providers to squeeze out more speed.

A laser beam technology developed for the U.S. military for communication between fighter jets is to be used over the route between Britain and Germany in coming months.

"There is more money being poured into this wireless space than any time in its history," said Mike Persico, chief executive of Anova Technologies, which is building a communications network with wireless dishes and laser beams. "A lot of things are science fiction, but I like to say we operate in the world of science fact-ion."

Anova's public announcement of its new technology before its launch was out of character in a business that is usually shrouded in secrecy as rivals jockey for the fastest connection.

(Read More: New Fee Could Slow High Speed Traders: CFTC Commissioner)

More typical was the battle to erect the first microwave link in Europe.

Perseus Telecom kept quiet last October when it flipped the switch on its London-to-Frankfurt network, which trimmed several thousandths of a second, or milliseconds, off the time needed to complete a trade. The privately held firm based in New York only showed its hand when European telecoms provider Colt Group launched a rival service in February.

"High frequency trading is driven by being either the fastest to market, or equal fastest to market, and coming second is like losing," said Hugh Cumberland, manager for financial services with Colt.

Series of Dishes

The move to microwave is just one more step by high frequency trading (HFT) companies to seek an edge since they emerged on the scene decades ago with computer black boxes that spew out thousands of trades a second.

HFT has grown to dominate equities trading, although volumes and profits have tapered off since the global financial crisis.

In Europe, high-speed trading accounted for 6.7 trillion euros of equities trading volumes last year, 39 percent of the total, analyst Rebecca Healey at consultancy Tabb Group said.

Profits in the U.S. HFT sector slid by 56 percent last year to $1.8 billion, she added.

High speed trading has been blamed for causing violent lurches on financial markets, such as the U.S. "flash crash" in May 2010 when the stock market plummeted more than 1,000 points, or nearly 10 percent, in a matter of minutes.

The top U.S. derivatives regulator said on Tuesday the need to look at regulating automated trading was underscored by a phony tweet from The Associated Press' hacked Twitter account, which sparked a short-lived panic in the U.S. stock market last month. Germany is expected to bring in tougher rules governing high frequency trading later this year.

(Slideshow: Twitter Trading: 8 Tweets That Moved Markets)

The HFT firms say they provide liquidity to markets, which has narrowed the bid/ask spread and made dealing cheaper for other investors, but critics say that liquidity can evaporate in times of crisis.

As competition has intensified, HFT firms have gone to huge lengths to gain an edge, hiring scientists to develop computer algorithms, and trimming fractions of seconds off trading times by moving their computer servers into exchange data rooms.

In adopting microwave, traders have revived an old technology that was once used to carry U.S. long-distance telephone calls until the volume of traffic forced a move to fiber optic networks, which have much higher capacity.

For HFT, sending data through the air saves milliseconds. On the London to Frankfurt route, Perseus says its microwave system has slashed a round trip to below 4.6 milliseconds compared with 8.35 milliseconds for its high-speed fiber optic network.

Speed in HFT is typically measured in round-trip times to gauge how long it takes to send a trade and get a confirmation.

Perseus, which was formed in 2010, spent 10 million-20 million euros constructing its network of microwave dishes from London to Frankfurt, a time-consuming process involving permits for each tower from various jurisdictions.

"It's all about being as straight a line as possible. Pull the string as tight as you can without causing it to break," said Perseus Chief Executive Jock Percy.

Being fastest to transact between two trading centers is most important to one type of HFT strategy, arbitrage, where traders seek to be first to exploit price differences in two securities in different locations.

For example, when a share on the Deutsche Bourse is out of sync with its equivalent futures contract in London or vice versa, HFT computers will simultaneously buy the cheaper one and sell it on the more expensive market.

Laser Beams

Anova is betting its laser technology will prove to be another leap for the sector, targeting the weaknesses of microwave dishes: They are easily disrupted by weather and can carry tiny amounts of data compared with fiber optic networks.

The company formed a joint venture with AOptix, founded by two California scientists who developed a high-bandwidth communications network for the U.S. Air Force to send large amounts of data between moving aircraft using rotating lasers.

The new hybrid system—combining lasers and millimeter wave wireless dishes—is due to be first rolled out on short-range U.S. and British networks over the next two months before the first long-haul route to Germany, perhaps next year.

"We see Europe as our first expansion front outside of the U.S., and then we see going both to Russia and Asia as our next stops," Persico said.

He says the technology—which makes calculations 300,000 times a second to zero in on the tightest beam between towers—is as fast as microwave but as reliable and high-capacity as fiber optics.

Since fiber optic channels typically carry 1,000 times more data than most microwave networks, most HFT firms ration microwave for their most speed-sensitive strategies.

They retain fiber optics for other trades and as a back-up when microwave is hit by weather.

Ambush

Persico, who acknowledges rivals are also working behind the scenes, must hope that he is not the victim of the type of ambush that hit traders when microwave emerged in the United States.

At the time, when most speed traders were focusing on improving fiber optics networks, privately owned Spread Networks made a massive investment that Forbes estimated at $300 million.

It built a new fiber optics network between Chicago and New York to improve speed by three milliseconds. After it opened in 2010, customers couldn't understand why they were being beaten.

Later they realized the first microwave network for traders had been built in secret by rivals.

Asked what might come next, Persico mentioned the use of drones and barges to create a transatlantic wireless network.

"Some people talk about using balloons or satellites, and some of what I have heard is even more crazy," said Alex Pilosov, chief executive of Windy Apple Technologies, which takes credit for building the first microwave network between New York and Chicago.

"But I don't like to talk about what we are doing until we have a product and then we sell it," he said. "But even then you might not hear about it."