How Does the Concept of “Latency” Affect High-Frequency Traders’ Order Priority?

Latency, the time delay in network communication, is a critical factor for high-frequency traders (HFTs) because execution priority is often determined by time (first-in, first-out) at the same price. HFTs invest heavily to minimize latency (co-location, dedicated lines) to ensure their orders reach the exchange's matching engine milliseconds before competitors.

This low latency gives them a decisive advantage in securing execution priority at the best price, allowing them to capture fleeting arbitrage opportunities.