How Do Centralized Crypto Exchanges (CEXs) Technically Mitigate Latency-Based Front-Running?
CEXs employ several technical safeguards. They use co-location services to minimize network latency differences between traders.
They also implement sophisticated order matching engines that process orders based on price-time priority. Furthermore, some exchanges use "speed bumps" or randomized batching of orders to negate the advantage of microsecond speed differences.
These measures aim to create a level playing field for order submission.
Glossar
Order Matching Engines
Architecture ⎊ The Order Matching Engine is the core computational architecture of a derivatives exchange, responsible for executing trades by applying a predefined set of rules to pair buy and sell orders.
Network Latency Differences
Disparity ⎊ Network latency differences, particularly within cryptocurrency markets and derivatives trading, manifest as variations in propagation delays across geographically dispersed nodes and systems.
Centralized Crypto Exchanges
Custody ⎊ Centralized Crypto Exchanges function as custodians of digital assets, offering a regulated framework for storage and transfer, a critical component for institutional participation in cryptocurrency markets.
Randomized Batching of Orders
Order ⎊ Within cryptocurrency derivatives, options trading, and broader financial derivatives markets, Randomized Batching of Orders represents a sophisticated order execution strategy designed to mitigate market impact and latency arbitrage risks.
Level Playing Field
Fairness ⎊ A level playing field in financial markets refers to the principle of equitable access to information and execution opportunities for all participants.