Low Latency Computing?

What is low latency computing? I know roughly, but I would like to know how it is being achieved, why it is important and if it would be possible for a retail trader to benefit. Answers within an hour, please, I haven't got all day...

Latency is simply the time it take for signals to travel from 1 computer to another. There are several factors that affect it but the single biggest on is the distance of your trading terminal to your broker.

To me latency is important. How often have you seen guys moaning about re-quotes or slippage. You have been around long enough to know these issues, so I won't go into that.

When I think of my broker, I think of a store with a big sign outside that says 'while stocks last'. My broker is exactly like that. The price you see on your charts is only good while stocks last. Moral of the story is that if you are taking half a second(500ms) to receive data and another 500ms to send your trade request, your order is going to be behind mine, because I pay attention to my latency. I will get the price offered, and you will be slipped to the next best price.

Latency is relative for retail. You would need a server inside the exchange or in the IB facility to benefit from low-latency algs.

http://dl.dropbox.com/u/39904/Automa...yLatencies.png

It's being achieved by spending boatloads of money.

http://www.docstoc.com/docs/18717932/Latency-Arbitrage

I think that it is possible to take advantage of difference in latency, and really ponder this to the maximum, but it takes servers and fast computers and eas and employed programmer and the like.

But heres how think and work around this issue. First of all let me give you some brief background.

I trade short term, i never keep trades more then say 15 minutes. I must use scripts, otherwise it would be near impossible for me to place my orders where i need to. I dont have any confirmation on my scripts, i dont have time for that either, i just doubleclick them and there is the trade. I cant really accomodate slippage into my way of trading, since minimum slippage for the orders are 1 pip, and 1 pip is a substantial amount of my normal TPs.

Now because my total latency is maybe 1-4 seconds and by that i mean from the time that i click my script to the time that my plattform has registered a trade, that is kind of slow for the sort of trading i am doing. But i have made the discovery that a bit of bad latency can be good for yah, and here is why.

If i get requoted, which i often used to get, that of course means that price changed since i looked at it and used my script. I have found through trial and error that i dont really want to get in if i get requoted, i want to get in when things are standing still. The reason for this is that i dont trade what i called "trends", i anticipate the "trend" and place a trade before it comes into existence. This is what i think everybody should be doing, i havent understood why anybody think there is such a thing as a trend. But anyway, this is the way to get bad latency to work for you. Since i dont plan on starting a company and employ people and have big servers, i dont bother with trying to take advantage of latency in any other way.

I posted an article on this some time ago:

The Low Latency Advantage in Online Trading

Latency is arguably the most important and often disregarded factor for the online trader. It is often neglected because it sounds like a complicated computer term, but understanding what it is can quickly and substantially increase the trader’s earnings. Computer networks communicate by sending packets of data through the Internet. Latency is the time required for data to travel from the source to destination network. It is measured in milliseconds, or 1/1000th of a second.


[read it here]

Something is wrong with this chart:

I can not "Point and Click" in 10..150 milliseconds, no matter how much coffee I have had in the morning.

And my cheap Pentium-M Laptop that has cost me "$free - $2k" a few years ago can crunch 780000 floating point numbers in 200 microseconds.