Latency

Latency is the time delay between the initiation of a trade instruction and its execution by the exchange matching engine. In fast-moving markets, even a few milliseconds of latency can be the difference between a successful trade and a significant loss.

For traders relying on stop loss orders, high latency can mean that the order is executed at a price far worse than the trigger level because the market has moved further during the delay. This is particularly critical in the context of derivatives, where price movements can be amplified by leverage.

Reducing latency is a primary focus for exchanges and professional traders, who often use co-location services to place their servers as close as possible to the exchange's matching engine to minimize this delay.