How Can ‘Colocation’ Mitigate Latency Risk for Dark Pool Participants?
Colocation is the practice of placing a participant's trading servers within the same data center as the exchange or dark pool's matching engine. This drastically reduces the physical distance data has to travel, minimizing network latency.
For dark pool participants relying on a fast, accurate reference price (like NBBO), colocation ensures they receive and act on that price data with the lowest possible delay, thus mitigating the risk of stale execution.
Glossar
Pool Participants
Member ⎊ Pool participants refer to individuals or entities who contribute resources to a collective pool to achieve a common objective, typically sharing in the resulting rewards or benefits.
Colocation
Proximity ⎊ Colocation, within cryptocurrency derivatives and options trading, fundamentally reduces latency by physically locating trading servers close to exchange matching engines.
Dark Pool
Anonymity ⎊ is the defining characteristic of these private trading venues, allowing institutional participants to execute large block orders without signaling intent to the public order book.