Low latency

Low latency allows human-unnoticeable delays between an input being processed and the corresponding output providing real time characteristics. This can be especially important for internet connections utilizing services such as Trading, online gaming and VOIP.

VOIP is tolerant to some degree of latency since a minor delay between input from conversation participants is generally attributable to non-technical issues, but substantial delays may impair communication. On the other hand, online games are more sensitive to latency since fast response times to new events occurring during a game session are rewarded while slow response times may carry penalties (for instance in a first person shooter a slow response time may leave a player in the line of fire for longer periods of time). A player with a high latency internet connection may show slow responses in spite of superior tactics or the appropriate reaction time due to a delay in transmission of game events between said player and other participants in the game session. This gives players with low latency connections a technical advantage and biases game outcomes, so game servers favor players with lower latency connections, sometimes referred to as low "ping" times (typically measured in ms).

Low latency (capital markets)

Low latency is a topic within capital markets, where the proliferation of algorithmic trading requires firms to react to market events faster than the competition to increase profitability of trades. For example, when executing arbitrage strategies the opportunity to “arb” the market may only present itself for a few milliseconds before parity is achieved. To demonstrate the value that clients put on latency, a large global investment bank has stated that every millisecond lost results in $100m per annum in lost opportunity.

What is considered “low” is therefore relative but also a self-fulfilling prophecy. Many organisations are using the words “ultra low latency” to describe latencies of under 1 millisecond, but really what is considered low today will no doubt be considered unacceptable in a few years' time.

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: