Does your broker provide a low latency execution trading service?

When researching broker services, you will come across the term low latency execution. While it is extremely technical, the concept is relatively straightforward and a vital part of any trade execution service. Here at GIS UK Ltd, we are continually investing in the latest trading platform technology to reduce latency and improve trade execution times.

What is low latency execution?

To understand the concept, it is important to appreciate the definition of latency. In its most basic form, it is the delay/time lapse between a request and response. With execution-only trade services, it is the time taken for the trade instructions to be passed to the market and dealt upon. This type of electronic trading, direct with markets, is often referred to as low touch execution because of the limited number of "hands" involved.

Trade execution route to market

The traditional method for passing electronic trading instructions is as follows:-

Trader enters order via an online trading platform
The details are sent to the broker’s servers
The order is passed from the broker to the market
The order is placed in the market queue and eventually executed

The quality of low latency execution can be impacted individually at any one of these junctures or the trader can experience a cumulative effect. When you consider the volatile nature of many stock markets, and the fact that trade execution-only services are popular with day traders, low latency execution services are extremely important.

How can brokers improve latency?

The lower the latency, the faster the information is relayed, resulting in a very quick trading service. But how do we improve latency?

The fewer connection points in the execution-only trading process the less opportunity for delay. Due to our ongoing investment in new technologies, we can offer Direct Market Access (DMA) to experienced traders. Under DMA, the order routing process is as follows:-

Order is sent directly in electronic format to the market
Orders placed in the queue/on the order book and executed

As a consequence of the direct connectivity with the market, this allows traders to watch order books, manage their trades more closely and get more of a feel for what is happening. Unfortunately, even when a low latency execution-only trading service has been created this is not the end of the story for brokers.

Improving and maintaining low latency execution

Investment is an extremely competitive market; brokers are spending huge amounts of money integrating new technology and services. While premium high-touch trading services, where brokers take a more hands-on approach, are popular, we have seen a huge increase in the number of day traders. Day traders require the lowest latency levels possible due to the relatively small margins upon which they tend to trade.

The main ways to improve and maintain low latency execution-only trading services are as follows:-

Invest in the latest computer hardware
Perform regular “ping” tests to monitor latency levels
Constantly monitor trading platforms for the emergence of time lags

Latency is a very complex issue and one which needs to be monitored on an ongoing basis. It is an integral part of any low touch execution-only trade service. Speed coupled with accuracy, efficiency and swift reporting together with clearing services will determine the quality of any trade execution service.

Summary

On the surface, when looking at low latency execution it appears that some potential issues are out of the control of the trader and the broker. In theory, this is true. However, GIS UK Ltd is continually investing in the latest technology, monitoring and researching the best trading platforms and placing constant pressure on third-party providers to maintain, and improve, latency levels. Who would have guessed what goes on behind the scenes of an electronic trading platform?

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