What Is Latency and Does It Affect Your Trading?
Latency in trading is the time delay between when you send an order and when it reaches your broker’s server. It’s measured in milliseconds (ms). Lower latency means faster execution. For most retail traders, latency between 20 and 100 ms is normal and perfectly fine. It only becomes a real concern if you’re scalping or running high-frequency strategies where every millisecond counts.
How Latency Works in Trading
When you click “Buy” on your platform, that order travels from your computer through the internet to your broker’s matching engine. The round trip takes time, and that time is your latency.
Several factors affect it: your internet connection speed, the physical distance between you and your broker’s servers, the number of network hops in between, and how fast your broker processes orders.
A trader in New York connecting to a broker with servers in New Jersey might see 5 to 15 ms latency. A trader in Southeast Asia connecting to the same broker might see 200 to 300 ms. That’s why VPS services located near exchange data centers are popular.
When Latency Actually Matters
For the vast majority of swing traders and position traders, latency is irrelevant. If you’re holding trades for hours or days, a 100 ms difference in execution speed changes nothing about your results.
Latency matters most for:
- Scalpers who trade for 1 to 5 pip moves and need precise entries
- Automated strategies that react to price changes in real-time
- News traders trying to enter positions within seconds of an announcement
- Order flow traders who need their DOM (Depth of Market) data to be current
If your strategy targets 20+ pip moves or holds positions for more than a few minutes, spending money to reduce latency is a poor use of resources.
How to Measure and Reduce Latency
You can measure latency by pinging your broker’s server IP address. Open a command prompt and type ping [broker's server IP]. The response time in milliseconds is your approximate latency.
To reduce latency:
- Use a VPS located near your broker’s data center
- Use a wired internet connection instead of WiFi
- Close bandwidth-heavy applications during trading hours
- Choose a broker with servers near major exchanges if execution speed is critical
Key Takeaways
- Latency is the delay between sending an order and it reaching your broker, measured in milliseconds
- 20 to 100 ms latency is normal and acceptable for most retail trading strategies
- Only scalpers, automated systems, and news traders need to worry about minimizing latency
- A VPS near your broker’s servers is the most effective way to reduce latency
- Measure your latency by pinging your broker’s server IP
Frequently Asked Questions
What’s considered “low latency” in trading? Under 10 ms is considered low latency. Most retail traders achieve 20 to 100 ms, which is fine for strategies that aren’t based on speed.
Will a VPS make my trading faster? If the VPS is closer to your broker’s servers than your home computer, yes. The improvement depends on how far away you currently are. Check VPS location guides for more details.
Does slippage come from latency? Latency contributes to slippage, but it’s not the only factor. Liquidity, market volatility, and order size all play a role. Reducing latency helps but won’t eliminate slippage entirely.
Risk Disclaimer: Trading involves substantial risk of loss. Past performance is not indicative of future results. See our full risk disclaimer.