Definition
Low Latency
Low 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.
Latency in an Indian trading stack accumulates across the network path, the exchange gateway, the order management system and the strategy logic. Firms invest in co-location, kernel-bypass network cards, field-programmable gate arrays (FPGAs) and optimised code to drive end-to-end latency as low as possible.
For latency-sensitive strategies such as market making and latency arbitrage, even a few microseconds determine who captures a price. Lower latency, however, brings diminishing returns and high cost, so most participants balance speed against the economics of the specific strategy rather than chasing the absolute fastest path.
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.
- Latency ArbitrageLatency arbitrage is a strategy that profits from being faster than other participants to act on the same information, capturing price differences between venues or instruments before they realign.
- 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.