What does latency mean in trading?
In trading, latency refers to the time delay between the moment a trader places an order and when that order is executed on the exchange. This delay can be due to various factors including internet speeds, processing times, and system performance. It's crucial because even the slightest delay can lead to differences in the expected and actual execution price of an order, potentially affecting the profitability of trades.
Let's understand this with an example:
Imagine a scenario where Mr. A aims to purchase 100 shares of ABC Ltd. priced at ₹100 each. He enters a market order at precisely 10:00:00 am. However, owing to latency issues, his order only reaches the exchange two seconds later, at 10:00:02 am. During this brief window, the price of ABC Ltd. has climbed to ₹100.05 per share. As a result, Mr. A ends up spending an additional ₹5 for his transaction than he originally planned.
It's evident from this example how latency can impact a trader's position, especially in highly volatile markets where prices can fluctuate rapidly within fractions of a second.
Related Articles
What is latency in trading?
In trading, latency refers to the time lag between the moment an order is initiated by a trader and when it is effectively executed on the exchange. This delay, albeit often in milliseconds, is pivotal because it dictates the efficacy and precision ...
Why is latency important in trading?
Latency is significant in trading as it determines how quickly traders can react to market movements and capture opportunities. Low latency enables faster trade execution and better price discovery, while high latency can result in slippage, missed ...
How does FYERS ensure low latency for its customers?
At FYERS, we prioritize delivering an optimized trading experience for our users, and one way we achieve this is by minimizing latency. Here are some methods we employ: Order Management System (OMS): We deploy a cutting-edge OMS that offers both high ...
What does 'X' settlement or cash settlement mean in trading?
In trading, settlement refers to the process by which securities are transferred from the seller to the buyer. However, there are times when the delivery of these securities faces disruptions. Here's a look at how 'X' or Cash Settlement comes into ...
What does T+2 settlement mean?
The 'T+2' settlement represents the timeline for completing a security transaction. Here’s a breakdown: T (Transaction Day): The day the trade takes place. T+2: Refers to the fact that the finalisation of the transaction – both payment and receipt of ...