E-Mini S&P Futures Strategies, Mini Dow, Mini Russell and Mini NASDAQ Trading » Archive of 'Aug, 2011'

Latency cost for Futures Traders Part 2 No comments yet

Latency cost will occur between the order submission and the actual price execution. The most substantial cost occurs on order that are “Market” order where a trader would seek an immediate execution. This is what traders call “slippage”, however latency also has costs associated with Limit Order.

Limit orders get executed on a price-time queue. Those traders who use Limit as entry or exit and do not have a low latency solution, will experience a further delay at different price levels and miss the order all together. Consider that if prices move quickly, traders that have delays will be less likely to fill their new limit orders as the cancel/replace orders get queued again further behind the traders who had low latency solutions. Traders might not get filled at all or just get partial execution.

The cost of latency for futures traders who use liquid markets as the eMini S&P,Bond futures, currency futures,etc explains why a demand for low latency technology could be increasing.
Using low latency solutions is an advantage even for those who have might have less latency cost as used in swing trading and long term methodologies.

There is no total elimination of latency as market conditions also play a big role, along with external factor, however here are some method that you could POTENTIALLY decrease latency:

1) Use method that require less transactions and higher time frames where cost of latency might affect a trader less.
2) Plug a data feed such as Rithmic to your trading platforms. Please read here about the fast capability of order dissemination: Low Latency Futures Trading
3) Use a platform such as NinjaTrader because it can facilitate Rithmic. In addition, Rithmic provides unfiltered data which is important for those who will trade on a tick by tick data.
4) If you live in far location, also consider a NinjaTrader hosting solution

Prior to deciding whether you use one solution over another, you could use a demo and decide if the use of one technology over another would be advantageous to you.

Trading in futures and options on futures involves substantial risk and is not suitable for all investors. Past performance is not necessarily indicative of future results.

Latency cost for Futures Traders Part 1 No comments yet

Futures traders might not be informed about the cost that arises from the latency (speed) of their execution. However, they pay a very significant cost even if they don’t utilize day trading, frequent buy and sells, or strategies that one might perceive to have on his/her strategies. The systematic cost associated with the latency cost could be significant and could turn a theoretical strategy, which is profitable to unprofitable in real life.
When you place a “Market Order” in the futures market, the price of execution (fill) could be very different from where you have observed the best bid/offer.  This “slippage” has a tremendous effect on the bottom line of any strategy. Traders can place limit orders, however delays in placing, updating and cancelling orders could be a very costly effect as well. The speed of execution could add additional cost to futures trading.
Why would a trader experience delays in execution?

1) Geographic location (proximity to the exchanges)

2) Speed of Internet transmission (your ISP provider)

3) Hardware (your computer)

4) Server locations for the platform (data)

In the next section (part 2) we will address possible solutions to latency and execution.

Trading in futures and options on futures involves substantial risk and is not suitable for all investors. Past performance is not necessarily indicative of future results.

Top of page / Subscribe to new Entries (RSS)