Why latency is important?

[Abadon]

Hello,

I have very deep knowledge in information technologies and system administration, but I'm new in forex trading.

I search on the internet, but can not find good technical explanation why network latency from my metatrader terminal to my broker is so important.

If someone can explain me I will be very happy.

Thank you in advance.

[Enivid]

If you are scalping - taking a lot of orders during a short period of time - low latency is very important, because you'll get more accurate execution and less requotes. Latency is also very important to HFT (High Frequency Trading) arbitrage traders who want to profit from quote difference on two or more liquidity providers - but that's totally another story.

[Abadon]

If I understand correctly latency in network world and from forex perspective are two different things?

In network world latency is the time it takes for a specific block of data on a data track to rotate around to the read/write head.

From Forex perspective that means execution time: how long it takes from the click on order execution and until I receive a confirmation that the order was actually executed.

That's why if I understand correctly I can have very fast network with low latency, but if my computer is slow or server of my broker is overloaded I will have bigger latency in trading correctly?

In HFT (High Frequency Trading) delay depends primarily on how fast is my pc and from current load of server of my broker correctly?

Because for every order I open new network connection correctly?

[Enivid]

Originally Posted by Abadon

If I understand correctly latency in network world and from forex perspective are two different things?

In network world latency is the time it takes for a specific block of data on a data track to rotate around to the read/write head.

From Forex perspective that means execution time: how long it takes from the click on order execution and until I receive a confirmation that the order was actually executed.

No, network latency is the same in general and in Forex. But in Forex, network latency is important only because of its consequence in the execution delay.

Originally Posted by Abadon

That's why if I understand correctly I can have very fast network with low latency, but if my computer is slow or server of my broker is overloaded I will have bigger latency in trading correctly?

Bigger execution delays, yes.

Originally Posted by Abadon

In HFT (High Frequency Trading) delay depends primarily on how fast is my pc and from current load of server of my broker correctly?

Because for every order I open new network connection correctly?

In HFT delay depends mainly on the connection speed. No one uses PCs or brokers in HFT. In HFT the trading servers are located in the direct proximity to the liquidity providers (exchanges). That's where each millisecond matters and is worth millions of dollars.

[Abadon]

Thank you now I understand basic things in forex trading. One last question - If I have big latency this can cost me money due different exchange rate.

For example I want to exchange 100 USD to EUR. Current exchange rate USD:EUR is 1:0.5. I make order, but until my order runs if my latency is big exchange rate can be changed to 1:0.7 and my order to be executes on new exchange rate correctly?

[Enivid]

In this case, you'll get a requote (broker will ask you if you want to execute your order at a new price) or a slippage (the order will be executed automatically at a new price). Of course, the price may move into your way and execute at a better price due to the lag.