For example, when executing arbitrage strategies the opportunity to "arb" the market may only present itself for a few milliseconds before parity is achieved.
There are many factors which impact on the time it takes a trading system to detect an opportunity and to successfully exploit that opportunity, including: From a networking perspective, the speed of light "c" dictates one theoretical latency limit: a trading engine just 150 km (93 miles) down the road from the exchange can never achieve better than 1ms return times to the exchange before one even considers the internal latency of the exchange and the trading system.
This theoretical limit assumes light is travelling in a straight line in a vacuum which in practice is unlikely to happen: Firstly achieving and maintaining a vacuum over a long distance is difficult and secondly, light cannot easily be beamed and received over long distances due to many factors, including the curvature of the Earth, interference by particles in the air, etc.
Wireless data transmission technology can offer speed advantages over the best cabling options, as signals can travel faster through air than fiber.
When talking about latency in the context of capital markets, consider the round trip between event and trade: We also need to consider how latency is assembled in this chain of events: There are a series of steps that contribute to the total latency of a trade: The systems at a particular venue need to handle events, such as order placement, and get them onto the wire as quickly as possible to be competitive within the market place.
It follows that to calculate latency of a connection, one needs to know the full distance travelled by the fiber, which is rarely a straight line, since it has to traverse geographic contours and obstacles, such as roads and railway tracks, as well as other rights-of-way.
This area doesn't strictly belong under the umbrella of "low-latency", rather it is the ability of the trading firm to take advantage of High Performance Computing technologies to process data quickly.
The competitiveness of the brokerage firm in many cases is directly related to the performance of their order placement and management systems.
Many exchanges have turned co-location into a significant moneymaker by charging trading firms for "low latency access" privileges.
This isn't always possible, however, so clocks on different machines need to be kept in sync using some sort of time protocol: Reducing latency in the order chain involves attacking the problem from many angles.
Another strategy for reducing latency involves pushing the decision making on trades to a Network Interface Card.
This can alleviate the need to involve the system's main processor, which can create undesirable delays in response time.