Co-Location Execution
Servers are placed in the same data center as the exchange’s matching engine, minimizing physical distance and latency.
Algo Server
Exchange
<1 ms
(often in µs or ns)
Total Round-Trip Latency
Advantages:
- Ultra-Low Latency: Near-instantaneous trade execution.
- Reduced Slippage: Orders are filled at or very close to the expected price.
- Competitive Edge: Essential for High-Frequency Trading (HFT) and arbitrage strategies.
- Reliability: Stable, high-performance connection to the exchange.
Trader Terminal Execution
Trades are sent from a remote location over the public internet, introducing significant delays.
Trader’s PC
Exchange
30-300+ ms
(can be much higher)
Total Round-Trip Latency
Disadvantages:
- High Latency: Significant delays due to distance and network hops.
- Increased Slippage: Prices can change between order placement and execution.
- Missed Opportunities: Too slow for time-sensitive strategies.
- Variable Performance: Dependent on public internet conditions.
Why Latency Matters
In the world of trading, every millisecond counts. Low latency allows traders to react to market events faster, get better prices, and execute strategies that are impossible with slower connections. While co-location comes at a premium cost, it provides a crucial advantage for professional and high-frequency traders.
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