Risk Factors, Expected Returns, and In ...
When considering investments in alternative asset classes beyond risk, return, and correlation, practical... Read More
Latency is the delay between the occurrence of an event and a subsequent event. It can also be defined as any delay in time between a request and a response.
It is worth noting that electronic traders must use fast computer systems to minimize latencies.
Question
Which of the following statements about latency is the most accurate?
- High latency causes an improved overall efficiency of the market.
- Low latencies improve the overall efficiency of the market.
- Using fast computers increases latency.
Solution
The correct answer is B.
Low latency means that there is less delay time between a request and a response. Therefore, low latency leads to high productivity in the system; thus, the overall efficiency is improved.
A is incorrect. When there is high latency, much time will be wasted in the system. This will cause low productivity in the system.
C is incorrect. The use of fast computers reduces latency because assigned tasks are executed quickly.
Portfolio Construction: Learning Module 6: Trading Costs and Electronic Markets; Los 6(h): Describes the comparative advantages of low-latency traders