The Shadow Price of Latency: Improving Intraday Fill Ratios in Foreign Exchange Markets

Latency is the time delay between an exchange streaming market data to a trader, trader processing information and deciding trade, receiving order from trader. Liquidity takers face moving target problem as consequence of their latency in marketplace. They send orders with limit price that aim at quantity they observed book (LOB), by processed exchange, prices could have worsened, so may not be filled, or improved, filled better price. In this paper we provide model compute liquidity would willing pay reduce To end, derive latency-optimal strategy specifies taking increase chances filling if, due latency, quantities LOB worsened. The balances trade-off costs walking targeting desired percentage over period time. We employ cost improving fills shadow latency. Finally, use proprietary set foreign (FX) maximum FX for colocation hardware