What is Latency Trading?

🎓 PROP TRADING TERMINOLOGY

🚫 What is Latency Trading All About?

Latency in trading refers to the delay between initiating a trading action and its execution. It's the time it takes for an order to travel from the trader's system to the trading platform or exchange, be processed, and for the confirmation to return. ⏱️📉

Traders exploit latency through a strategy known as latency arbitrage, capitalizing on tiny time differences between price updates on different trading platforms. 📈💻 They use sophisticated algorithms and high-speed data feeds to monitor prices across platforms and exchanges.

When these discrepancies are spotted, traders quickly buy the asset at the lower price and sell it at the higher price on another exchange. This requires super-fast execution, achieved through high-frequency trading (HFT) systems. 🚀⚡

Most prop firms ban latency arbitrage. 🚫 This strategy gives traders an unfair advantage and can cause increased volatility and infrastructure strain. 🛠️💸 Prop firms want traders with real skills, who can succeed in various market conditions without relying on exploiting technological gaps. 🎮