Latency is the part of quantitative trading that attracts the most attention and the least measurement. Firms invest in colocation and kernel bypass on the general principle that faster is better, without first establishing where their time is actually spent or what a microsecond is worth to the strategies they run. Both questions have answers, and the answers frequently do not justify the invoice.
Start with the budget. Tick-to-trade decomposes into network transit, feed handling and normalisation, the decision itself, order construction, and the path back out to the venue. In most systems that have not been specifically engineered for it, the decision is a small fraction of the total and the serialisation and messaging layers are a large one. Optimising a model that accounts for eight per cent of the path is a common and expensive mistake.
Then ask what the microseconds buy. For a market maker, latency converts directly into queue position and into the ability to cancel before being adversely selected — a mechanical relationship that shows up in the fills, on the wrong side of a move. For a strategy holding positions for hours, the same microseconds buy almost nothing, and the engineering effort is better spent on execution scheduling and transaction cost analysis.
The uncomfortable case is the strategy whose edge is real but whose horizon overlaps with faster participants. Here the choice is not between fast and slow but between competing on speed and restructuring the strategy so that speed stops being the binding constraint — trading less urgent signals, executing passively over longer horizons, or accepting a smaller share of a larger opportunity set.
Whichever route is taken, take it from measurement. Instrument the path, produce a distribution rather than an average, because the tail is what costs money, and price the microseconds against the strategies you actually run. Firms that do this often find the profitable investment was in determinism rather than in raw speed: a slower system with a predictable tail beats a faster one that occasionally stalls.
