When it comes to broker risks, latency tends to be the number one risk for the APAC region. This disadvantage exposes local brokers to potential financial, operational, and reputational damage, and it shouldn’t be ignored.
Today, we’re going to look into what latency risk means for Asia-Pacific brokerages, and the best ways to minimise it and thrive long-term.
Why is latency an issue in APAC?
Latency became a significant issue in the APAC region primarily due to its distance from other major financial market hubs.
Most liquidity providers and their data centres are located either in the EU, UK, or the US, while their presence in Southeast Asia remains limited at best.
As a result, both brokers and traders located in APAC experience a typical round-trip latency of 150-200 milliseconds when connecting to EU, UK, or US sources, solely due to network transmission limits.
What are the key risks of latency for APAC brokers?
The delay is unfortunate and puts APAC brokers and traders in a less favourable position.
However, perhaps the primary risk of latency is the potential for abuse. In high-frequency and algorithmic trading environments, latency arbitrage traders can utilise faster feeds to predict and exploit price movements, allowing them to execute orders ahead of other, slower participants.
When combined with subpar technology, such as slow liquidity bridges, poor hosting, or inefficient trading platforms, latency can increase to 300-400 milliseconds, further adding to execution risk and increasing slippage.
Overall, latency creates financial and reputational problems for the broker, leads traders to make poor trading decisions, results in an unsatisfactory experience for all market players, and slows down the industry’s growth.
How can APAC brokers minimise latency risks?
Direct market access and proximity hosting can reduce latency, but these solutions require financial investments and other resources, often out of reach for smaller brokers.
Here are the alternative ways one can minimise latency risks in APAC without breaking the bank:
- Co-locate servers near major exchange data centres, such as Tokyo or Hong Kong, to minimise physical data transmission distance.
- Leverage high-performance hardware and optimise network stacks to reduce processing times at the technical level.
- Use ultra-low latency trading platforms and bridge solutions to minimise latency.
- Continuous monitoring helps spot and resolve latency spikes in real time to minimise damage.
Together, these measures will help APAC reduce brokers’ latency and keep their operations protected from several risks. If you’re looking for advice or tips on where to start your journey against latency and other risks, reach out to the TFB team at sales@t4b.com, and we’ll be happy to share insights and tips for optimising your performance.
FAQ
What is latency in trading?
In trading, latency refers to the time delay between initiating an order and its execution.
Why do APAC brokers have higher latency?
The APAC region experiences higher latency due to its geographical location and the distance from major liquidity hubs in the US and across the EU, where most data centres are located.
What are cost-effective ways of reducing latency?
Colocating servers in regional financial hubs, such as Tokyo, helps minimise latency and the use of robust software, including liquidity bridges and monitoring solutions to track abnormalities in performance.
