Importance of latency when trading forex

To make a successful trade, a number of variables come into play.

Latency is a factor often overlooked.

In electronic trading, latency, or network latency, remains a complex topic. Put simply, though, latency is a synonym for the delay. Latency influences the amount of time it takes a client’s order to be executed by the server.

High latency represents extended periods of execution time while low latency refers to the swift response.

Latency is also typically measured in terms of milliseconds.

Why is Latency Important?

Price movement in the financial markets can fluctuate in a matter of seconds. These few seconds can mean the difference between a successful trade and a losing trade.

Timely market information and the ability to act upon its delivery are often impacted by latency issues.

Active traders ensure latency is managed to sustain consistency.

Surplus latency can be found in brokerage servers, internet connectivity as well as software and hardware.

Latency may influence the speed market data is received, such as price charts. By reducing excess latency, this enables the trader to base decisions on accurate, up-to-date trading information.

Poorly-coded trading platforms may cause delays in information being delivered promptly. This can be true not only in the delivery of market news and charts, but of actual order requests themselves.

Algorithmic trading strategies, high-frequency trading systems employed to execute large numbers of orders in fractions of a second, depend on low-latency systems. Latency, therefore, is particularly vital to the success of high-frequency traders – microseconds can carry a great deal of financial significance.

Slippage, a form of latency defining the price difference between expected trade execution and the price at which the trade fills, can impact retail market participants. For example, market orders, an execution order type designed to fill at the next available price level, can be executed at prices beyond what the trader was expecting due to the price change between the time the order was sent and the time it was executed on the server.

Internet Connectivity

Sluggish internet connectivity can cause latency issues.

Complications with your ISP may reduce the speed or your connection to your broker. Some ISP’s throttle or block connections perceived as malicious. It can only take a few strange network packets to give this impression.

Traders are urged to regularly perform ping tests with brokerage servers to measure internet connectivity.

Local Hardware

CPU (central processing units) and speed of local hardware can generate latency problems. If you have older hardware, your CPU and memory may simply not be up to handling the processing that modern computers require.

To sustain performance and reduce latency, traders must maintain hardware and software.

Forex VPS

The distance between the trader and the broker can impact trading system performance. This is where a VPS can help, a virtual private server.

The majority of top brokers provide access to a VPS system. A benefit of using the broker’s VPS over another provider is their VPS is often located in the same data centre as the trading servers. In addition to reduced cost, assuming that the broker provides a free VPS, this may result in faster trade execution – low latency.

With FP Markets we use a professional data center for VPS. We have partnered with a provider located close to our own MT4 servers to ensure lightning trade execution.