What is latency arbitrage?
Quick answer
Latency arbitrage exploits the delay between a fast price source and a slower one: the trader sees a price move on a faster feed and trades on the slower platform before it updates, capturing near risk-free profit. In a simulated environment it exploits the simulator, not the market, so most firms prohibit it.
Detailed answer
How to recognise it:
- Very high win rates on very short trades.
- Entries just before sharp moves.
- Activity concentrated in fast markets.
Defences:
- Fast, reliable feed to minimise delay.
- Minimum hold time so trades must stay open long enough to carry real risk.
- Review of short-trade profits before payout.
- Terms that allow removing profits made by exploiting latency.
PropExecutor's minimum hold time rule is judged on closed trades and can flag or breach; the maximum orders per day rule limits high-frequency activity.
Example
A trader watches a fast futures feed and buys a related CFD on the prop platform the instant the futures price jumps, closing seconds later when the platform catches up. Hundreds of such trades show a near-perfect win rate with holding times of a few seconds.
Prevent rather than punish
A good feed and a minimum hold time stop most of it before payouts are involved.
PropExecutor team · Updated
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