How Do “Speed Bumps” Technically Delay Order Execution to Prevent Front-Running?
Speed bumps are intentional, short, and fixed delays (e.g. a few milliseconds) introduced by an exchange before an order is processed by the matching engine. They are designed to negate the microsecond advantage gained by HFTs through superior technology or co-location.
By delaying all incoming orders equally, they level the playing field and make latency-based front-running strategies less viable.
Glossar
Microsecond Advantage
Latency ⎊ Microsecond advantage in financial markets denotes the capability to execute trades with minimal delay, often measured in microseconds, representing a critical edge in high-frequency trading environments.
Speed
Velocity ⎊ Speed within cryptocurrency, options, and derivatives contexts primarily denotes the rate at which transactions are processed and confirmed, impacting market efficiency and arbitrage opportunities.
Speed Bumps
Latency ⎊ These refer to mechanisms implemented within blockchain protocols or centralized exchanges designed to slow down transaction processing or block creation under specific conditions, often to prevent network instability or abuse.
Delay
Latency ⎊ This refers to the temporal gap between the submission of an instruction and its confirmed inclusion in the distributed ledger, a critical factor in high-frequency derivatives markets.