What is latency, and Why should we use low latency VPS for Forex Trading?

Beginner Questions
#1

Latency is the time it takes for the signal to get from the trading platform (such as MT4 or MT5) to the broker’s server and get processed.

Your trades will execute more quickly when the latency is minimal. When latency is high, then it delays your trading, and there are chances that you might lose more money in your trading.

The order must register with the trading server when you click the “buy” or “sell” button. So, When using low latency VPS, Signals will be received by your Meta Trader algorithms in milliseconds. They will fulfill your requests before your competitors if they receive notifications more quickly than others.

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#2

But why the algorithm isn’t aware of delay as both a click on buy/sell and the buy/sell values will be delayed equally. It is poor technology I believe.

#3

Between the time the algorithm sees the price and the time the order is placed, the price has moved. The longer that time, the more likely the move is to be larger. In reality, it doesn’t really matter unless you’re scalping. But it’s one of the tricks brokers use as marketing to get you on board.

#4

I meant a click from me and the clicked price as I see it can go in parallel through the network and the broker should base the deal on arrival of both my click and my clicked value. They should not steal from your funds if the price goes wild in the delay.

#5

That’s not how it works. Think of it as a proper broker, which is what retail brokers are pretending to replicate. If you were to buy shares when you saw the price at £1, but in the time it took your order to get through the shares now cost £1.10. The broker wouldn’t absorb the cost, you’d just pay the £1.10 per share. This is called slippage.

If it worked how you want it to, there would be ways to manipulate the trade so that you always make money. For example, you could set up a computer to have a minimal latency and another to have a big one. By watching the one with little latency, you could see which way price is going to move and place an order on the other system, to get the lower price that you know will go up in a fraction of a second. This is a form of arbitrage and there are ways to use arbitrage to make money, but not like that. The price you pay is the price at the time the order gets to the broker, and that is the correct outcome.

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#6

That applies to proper brokers and true FX trade not on FX betting shops calling themselves FX brokers.
For small FX betters like us here on this forum the “brokers” do not deal with banks to pass our tiny orders. It is just them and us.

#7

Correct, they aren’t real brokers, but read the second half of my reply. It’d be easy to write software and rip them off through arbitrage if it worked that way.

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#8

True I missed that point.