How Does 'Latency Arbitrage' Affect the Execution Quality for non-HFT Traders? ▴ Learn

How Does ‘Latency Arbitrage’ Affect the Execution Quality for non-HFT Traders?

Latency arbitrage is an HFT strategy that exploits tiny differences in the speed of market data transmission across different venues. An HFT firm sees a price discrepancy on one exchange before it is reflected on another.

They execute a trade on the slower exchange to profit from the price difference. This results in the non-HFT trader on the slower exchange executing at a worse price than the true market price, which is a form of negative slippage.

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