What Is Latency In Trading? How Does It Impact Your Trading?

Ever since electronic trading came to be, time is of the essence. When using automated trading platforms, this becomes even more important since a trading bot such as Fincrowd App will be able to carry out your trades only if it has the right information, especially about time.

Understanding latency

In the vast and complex world of the financial markets, latency is defined as the delay in time that occurs between a request and response. This is going by the dictionary definition of the word itself. When it comes to the markets, latency is defined as the time it takes for a trader to interact with the market.

When information is received and a trader acts on it in a timely and efficient manner, the latency factor comes into play. This is purely because when trading during the day, timely action on a signal will impact the amount of money you stand to make. This can be managed by an automated trading app such as Fincrowd App.

Since online trading has grown exponentially, trading apps and bots will give traders a huge advantage over others. In order for a trader to gain the maximum from this, a trader has to be able to quantify latency so that he has high odds of success.

How To manage latency in today’s markets

These days the exchange of information is instant. It is imperative that for the markets to function with the same speed that information is passed out, the one thing that has to be managed is latency. Any surplus latency has to be managed so that every trading operation is running at its optimum capacity.

Latency in market information shows up in the following areas:

  • Servers of brokerage firms
  • Internet speeds
  • Software and hardware of clients and customers
  • The servers of exchanges

Since information transmission is measured in milliseconds, and this information is passed on to a trader via a trading platform, latency in the markets and trading occurs from the time the information is relayed to the time it is received.

A lot of the factors that create latency are out of a traders control. It is impossible to go to a central exchange and upgrade their servers so that information comes out quicker. However, it is possible to reduce latency from a trader’s end by acting on the information as quickly as possible. The faster one responds to information the more profitable one’s trades will be.

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