Define “Latency” in HFT and Explain Its Critical Role in Execution

Latency is the time delay between an event (like a price change on an exchange) and the HFT firm's ability to react to that event. In HFT, lower latency is critical because it allows the firm to be the first to act on new information, such as price changes or order book imbalances.

Being faster minimizes the HFT's own slippage risk and enables profitable strategies like latency arbitrage, which often causes slippage for slower market participants.