Latency Arbitrage

Latency arbitrage is a strategy that profits from the short interval during which one venue's quote has not yet caught up with a price move that has already happened elsewhere. An automated system watching a faster feed can send orders against stale quotes on a slower platform before those quotes refresh. Because the gain comes from the delay rather than from any view on the currency, brokers and liquidity providers treat it as toxic flow and defend against it with faster infrastructure, last look checks, and contractual terms that restrict such activity. Many client agreements address it directly, so traders running very fast automated systems should read the rules that apply to their account before deploying them. Why it matters even if you are not doing it: the defences against latency arbitrage are applied to everyone. Last-look windows, maximum-deviation checks and order-rejection rules exist to stop stale-quote trading, and they are the same mechanisms a legitimate fast strategy meets as rejections and requotes. If your approach depends on speed, read the execution policy and the client agreement for the clauses on automated trading and abusive strategies before you fund the account — not after a profitable week is queried.