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 of trade executions. Latency can be influenced by various factors, including network speed, server performance, and trading platform efficiency.
For instance, consider Mr. A, who intends to acquire 100 shares of ABC Ltd. priced at ₹100 each. He sends a market order at 10:00:00 am. However, owing to elevated latency, the order communicates with the exchange only by 10:00:02 am. In that brief span of two seconds, ABC Ltd.'s share price escalates to ₹100.05. As a result, Mr. A incurs an unexpected additional expense of ₹5 for his order, a consequence of the latency-induced delay.
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