What does latency mean in trading?
In trading, latency refers to the time delay between when an order is placed by a trader and when it is received and executed at the exchange. Even a slight delay can cause the order to be filled at a different price than expected, particularly in fast-moving markets.
Why latency matters
Latency is a critical factor for active traders, especially during times of high market volatility. High latency can lead to:
- Slippage (difference between expected and executed price)
- Missed opportunities
- Unintended trade execution at less favorable prices
Key causes of latency:
- Network speed or internet connection
- Order routing delays
- Broker server load
- Exchange response times
- Device or software performance
Example – Impact of latency
Imagine Mr. A wants to buy 100 shares of ABC Ltd. at ₹100:
- He places a market order at exactly 10:00:00 AM.
- Due to latency, the order reaches the exchange at 10:00:02 AM.
- In those 2 seconds, the price rises to ₹100.05.
Result: Mr. A ends up paying ₹5 more than he expected due to the latency-induced delay.
What If...
| Scenario | Explanation |
|---|
| I place a market order during volatility | Latency may cause you to get filled at a price higher/lower than what you saw. |
| My internet or device is slow | This can increase latency and affect order execution quality. |
| I want better price control | Use limit orders instead of market orders to avoid slippage from latency. |
To reduce latency, ensure a stable internet connection, use updated trading software, and consider placing limit orders when precision matters.
Last updated: 28 Jun 2025
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