Latency definition

Latency is the time delay between a trader's action and the trading system's response. In trading it usually means the time from sending an order to that order reaching or executing at a broker, exchange, or liquidity provider.

Latency is measured in milliseconds or microseconds. Connection quality, server location, broker infrastructure, order routing, and the exchange matching engine all add to it.

Latency is the delay, while slippage is the price gap that delay can cause. Because the price can move while an order is in transit, high latency raises slippage risk, especially during news releases and fast markets.

Latency Example

You send a market order to buy EUR/USD at 1.0850.

High latency delays the order, and it reaches the market after price has moved to 1.0853.

The fill lands at 1.0853, leaving 3 pips of slippage from your intended price.

1.0853 - 1.0850 = 0.0003