Latency Arbitrage Mechanics

Latency arbitrage is a trading strategy that exploits the time delay between the transmission of market data and the execution of orders. In high-frequency trading, participants with faster network infrastructure can see price changes on one exchange and execute trades on another before the price has adjusted.

This practice relies on the physical distance between servers and the speed of communication protocols. In the cryptocurrency space, latency arbitrage is common across decentralized exchanges and centralized platforms.

While it can help align prices across different venues, it is often viewed as predatory by slower participants. The pursuit of lower latency drives significant investment in technical infrastructure and optimized order routing algorithms.