Limited Time Offer: Save 10% on all 2021 and 2022 Premium Study Packages with promo code: BLOG10    Select your Premium Package »

Latency

Latency

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.

Advantages of Low-latency Traders

  1. Adequate productivity: When there is a high latency in operation, much time is wasted. This, in turn, causes low productivity.
  2. Uncompromised reputation: When a company opens a new product that is attractive to its clients, there will be an influx of orders. High latency, caused by poor network connection and lack of a backup circuit, causes an operation to lag for some hours. The delay might upset the customers and consequently damage the reputation of a company.
  3. Minimal loss of revenue: Electronic traders run their transactions online. In case there are delays occasioned by slow internet, customers opt to move to the next trader. Consequently, the turnover from the investment is reduced.
  4. Timely communications: When there is low latency, the volume of information transmitted per unit time will not be affected. Much data can, therefore, be sent or received.

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?

  1. High latency causes an improved overall efficiency of the market.
  2. Low latencies improve the overall efficiency of the market.
  3. 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.

Reading 44: Trading Cost and Electronic Markets

LOS 44 (h) Describes the comparative advantages of low-latency traders.

Featured Study with Us
CFA® Exam and FRM® Exam Prep Platform offered by AnalystPrep

Study Platform

Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Online Tutoring
    Our videos feature professional educators presenting in-depth explanations of all topics introduced in the curriculum.

    Video Lessons



    Daniel Glyn
    Daniel Glyn
    2021-03-24
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    2021-03-18
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.
    Nyka Smith
    Nyka Smith
    2021-02-18
    Every concept is very well explained by Nilay Arun. kudos to you man!
    Badr Moubile
    Badr Moubile
    2021-02-13
    Very helpfull!
    Agustin Olcese
    Agustin Olcese
    2021-01-27
    Excellent explantions, very clear!
    Jaak Jay
    Jaak Jay
    2021-01-14
    Awesome content, kudos to Prof.James Frojan
    sindhushree reddy
    sindhushree reddy
    2021-01-07
    Crisp and short ppt of Frm chapters and great explanation with examples.