What is latency in trading?

What is latency in trading?

• A. Latency is the difference between the expected price and actual execution price.
• B. Latency is the delay between order submission and execution.
• C. Latency is the delay between order submission and its submission.
• D. Latency refers to the settlement date.

Answer: (B)

Latency in trading is the time delay from when you submit an order to when that order is actually executed. It’s about how quickly your order moves through the system—from your input, through the network and matching engine, to a filled trade. Lower latency means your order is processed faster, reducing the chance that prices move against you in the meantime. For example, if you send an order and it takes a couple of milliseconds to be filled, that time is your latency. Traders focus on reducing this delay with strategies like co-location, direct market access, and streamlined infrastructure to improve the odds of getting the intended price. The other descriptions mix different ideas: one refers to slippage—the difference between the expected price and the actual execution price, which is about price movement, not time delay. The other is a circular or nonsensical statement about the submission timing, and the last refers to the settlement date, which occurs after execution.

Latency in trading is the time delay from when you submit an order to when that order is actually executed. It’s about how quickly your order moves through the system—from your input, through the network and matching engine, to a filled trade. Lower latency means your order is processed faster, reducing the chance that prices move against you in the meantime.

For example, if you send an order and it takes a couple of milliseconds to be filled, that time is your latency. Traders focus on reducing this delay with strategies like co-location, direct market access, and streamlined infrastructure to improve the odds of getting the intended price.

The other descriptions mix different ideas: one refers to slippage—the difference between the expected price and the actual execution price, which is about price movement, not time delay. The other is a circular or nonsensical statement about the submission timing, and the last refers to the settlement date, which occurs after execution.