5.3.1. Why Latency Is a Problem

As highlighted, latency is the delay that occurs between the request being made and the response. When it comes to trading, it has a great impact on the profitability. Traders and investors need to have an accurate snapshot of the market so that they can make prudent decisions. The high volatility means that prices are always highly fluctuating. Therefore, an accurate reading and a fast transmission of instructions are both integral to making profits.

Most exchanges have a high latency. A high latency means that the delay between the requests and the results is considerable. The result tends to be inaccurate readings of the market. If the chart suite used has a high latency, the trader is not aware of price changes. They may be seconds behind others making similar trades. These unexpected price changes can cause serious losses. An example is a trader who wants to make a trade buying at 5.5 and selling at 7.0. If there is a high latency, his purchase request will be approved when the price has already risen to 6.0. This reduces the profits. In the worst, case, if the transaction cost is greater than the margin, then the trade makes losses. This is why low latency communication channels should be used with exchanges.

Compared to traditional financial markets, the terminals and network interfaces of crypto exchanges seem to be from a previous era. There is huge potential for improvement, and JP Montana ARBITRAGE acquired lots of expertise in this area.