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What Is “Colocation” and How Does It Give HFT Firms an Advantage in Minimizing Their Own Slippage?

Colocation places HFT servers near the exchange, minimizing latency and allowing rapid reaction to market changes to minimize the HFT firm's own slippage.
Greeks.Live10.11.25

What Is “Colocation” and How Does It Give HFT Firms an Advantage in Minimizing Their Own Slippage?

Colocation is the practice of placing a trader's servers physically within the exchange's data center. This proximity drastically reduces the network latency between the trader's system and the exchange's matching engine.

By having the lowest possible latency, HFT firms can react to market changes faster than others, allowing them to adjust their quotes or execute trades before prices move significantly, thus minimizing their own execution slippage.

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