Define “Latency Arbitrage” and How It Is Related to the Speed of a Matching Engine

Latency arbitrage is a high-frequency trading strategy where a trader profits from tiny price differences between exchanges or trading venues. It relies on having the fastest connection and the quickest access to the matching engine.

The arbitrageur exploits the time delay (latency) in price updates across different markets. A slow or poorly designed matching engine can exacerbate this by creating larger, longer-lasting price discrepancies.