The latency arbitrage story, and why it matters even if no one is doing it

[Shadow Trader]

Latency arbitrage means exploiting the time gap between two price feeds. A fast trader sees a price change on a quick feed and trades on a slow one before it updates.

Brokers worry about it because the slow feed is often theirs. A client with a faster data source can pick off stale quotes, win consistently and cost the broker money. Many brokers have terms that prohibit it, and some use countermeasures: delays on order execution, rejection of orders at stale prices, and last look.

For a retail scalper using no special data, the term might seem irrelevant. But broker defenses don't always distinguish carefully. A strategy that consistently profits on very short holds, with entries right at price changes, can look similar to latency arbitrage in the broker's statistics.

The result may be the same measures applied to an innocent client: a small execution delay, more rejections, or in the worst case, cancellation of profits.

This explains the importance of reading the policy on abusive trading and understanding what thresholds might apply. Some brokers state exact numbers, such as a percentage of trades held under a few seconds.

Staying on the safe side doesn't need changing the style, just keeping records of the strategy and an explanation, in case an account review occurs.

Has an account review for suspected latency arbitrage ever come up, and how was it resolved?