Latency Arbitrage

Latency arbitrage is a high-frequency trading strategy that exploits tiny time differences in the speed at which market data and price updates are received by different market participants. A latency arbitrageur invests heavily in co-location (placing servers inside exchange data centres), ultra-low-latency network infrastructure, and optimised software to receive and act on price information microseconds ahead of slower participants. This speed advantage allows them to detect and exploit short-lived price discrepancies — for example, between a stock's price on NSE and BSE, or between a futures contract and its underlying index — before the market corrects. SEBI's scrutiny of co-location practices at NSE in 2015–2016 brought latency arbitrage into public focus in India's market regulation debate.