UDP Vs TCP Latency

The choice between UDP and TCP for financial communication involves a trade-off between speed and reliability. TCP provides guaranteed, ordered delivery of data, which is essential for order execution, but the overhead of handshakes and retransmissions introduces latency.

UDP is connectionless and faster, often used for market data feeds where the most recent price is more important than every single packet, as lost data is superseded by the next update. In high-frequency trading, firms may use specialized protocols over UDP to minimize latency while implementing their own reliability layers.

The latency difference between these two protocols can be the deciding factor in who captures an arbitrage opportunity. Understanding the performance characteristics of these protocols is vital for building competitive trading infrastructure.

This comparison is a cornerstone of market microstructure design, balancing the need for speed against the risk of data loss.