How Does Co-Location Benefit High-Frequency Traders on CEXs?

Co-location involves HFT firms placing their servers physically in the same data center as the exchange's matching engine. This drastically reduces the physical distance data has to travel, minimizing network latency to mere microseconds.

This speed advantage allows HFT firms to receive market data and submit orders marginally faster than competitors, which is crucial for profitable arbitrage and market-making strategies.