Definition
Co-located Server
A co-located server is a trading firm's machine physically housed in the exchange's data centre under the co-location service, giving it the lowest-latency path to the matching engine.
Indian HFT and arbitrage firms rent rack space for co-located servers inside the NSE or BSE facility, connecting to the exchange via short, equal-length cross-connects. The proximity shaves microseconds off order round-trips, a decisive edge for latency-sensitive strategies.
The fairness of co-located server access, especially to the tick-by-tick data feed, was the crux of the NSE co-location case. Exchanges now aim to provide equal-distance cabling and simultaneous multicast data so that no co-located member is structurally faster than another within the facility.
Related terms
- High-Frequency Trading (HFT)High-frequency trading is a subset of algorithmic trading characterised by extremely high order submission rates, very short holding periods and reliance on ultra-low-latency infrastructure to capture tiny, fleeting price discrepancies.
- Co-locationCo-location is the practice of placing a trading member's servers physically inside or immediately adjacent to the exchange's data centre so that orders reach the matching engine with the lowest possible latency.
- Low LatencyLow latency refers to minimising the time delay between a market event and a trading system's response, measured in microseconds or nanoseconds for the fastest participants.
- Tick-by-Tick Data FeedA tick-by-tick (TBT) data feed broadcasts every order book event, additions, modifications, cancellations and trades, in real time, giving the most detailed live view of market microstructure.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.