[HUZ_LH]

Hi, newbie here trying to wrap my head around the whole ‘latency’ thing. I’ve done some Googling (shoutout to the rabbit holes of the internet), and from what I gather, latency is basically the time it takes for my trading order to get from me to the broker’s server and back. Sounds simple (ish), but apparently, it’s a huge deal for day traders, especially if you’re trying to catch fast-moving action.

So now I’m sitting here wondering… why is it so important? Like, does a tiny delay of a millisecond or two really make THAT much of a difference unless you’re some hedge fund with bots?

Also, how do I even go about finding a broker with ‘low latency’? Is it something brokers advertise, or do I need to dig through reviews or ask them outright?

Appreciate the help!

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[Christian Harris]

Latency, the time it takes for your trade order to reach the market and back, can be a big deal if you’re a day trader.

Imagine you’re trying to capitalise on a sudden price spike.

If your order takes too long to execute, you might miss out on the best price, or worse, your order might not even fill. That’s the impact of latency.

While professional traders and high-frequency firms obsess over milliseconds, even a few hundred milliseconds can hurt your day trading performance.

However, while striving for efficiency is essential, it’s important to remember that not all trading strategies require ultra-low latency.

For example, a well-defined ‘swing trading’ strategy can help you succeed without competing with high-frequency trading firms.

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[Steve]

Latency is one of those concepts that can feel a bit elusive at first but makes sense once you break it down. I won’t rehash it because it’s already been explained here.

Now, why does even a small delay matter? Let me give you an example. Let’s say you’re trading a stock like Apple, which moves pretty quickly during the day. You’re watching the price closely, and there’s a sudden dip. You decide to place an order to buy before it bounces back. But your order takes an extra 50 milliseconds (just a fraction of a second) to hit the server and get confirmed. By the time it’s processed, that dip has already been snapped up by other traders, and the price starts climbing again. You’ve missed the ideal price, all because of that slight delay.

For day traders, these delays can add up, and even tiny slippage (the difference between the expected price and the actual price) can cost you big, especially if you’re making many trades in a day.

This is why latency is important, and why high-frequency traders or hedge funds use ultra-fast connections and co-location servers (where they actually place their trading systems right next to the broker’s servers to minimize that lag).

As for finding a broker with low latency – yes, you can ask around. Pepperstone and Fusion Markets are two trading platforms I personally know of that generally execute orders in under 100 milliseconds.

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[Rafe]

You’ve got the gist of it – latency is basically how long it takes for your order to travel to the broker and back. A tiny delay can definitely make a difference if you’re day trading.

To find a broker with low latency, definitely ask them about their execution speeds! Some brokers do advertise this, especially those catering to more active traders.

Good luck!

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[HUZ_LH]

Wow I appreciate all the responses, everyone! I didn’t expect so much detail and helpful examples.

Thanks for the heads-up on asking about execution times directly and checking reviews – I wouldn’t have thought to be that upfront with a broker probably.

Anyone have thoughts on how much internet speed on my end matters for this too? Or is that less of a factor compared to the broker’s server speed?

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[Rafe]

I would say that both are important but speed on your broekr’s end is more important.

Your internet speed is mostly important in terms of:

– Receiving quotes, price updates, and charts.

– Making sure your orders are sent without delays.

To be honest, a stable connection is just as important as speed. You can’t be having frequent disconnections!

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[HUZ_LH]

Thanks! I am not worried about my internet dropping. I read somewhere that I should be getting at least 100mbs? Is that right?

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[Christian Harris]

I day trade perfectly fine with a 50mbps (ish) broadband connection, so 100mbps is more than enough.

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[HUZ_LH]

Excellent, that’s reassuring to know!

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