A cryptocurrency is a form of virtual/digital currency that runs on blockchain technology and uses cryptography to secure finances such as asset transfer, general financial services and transactions. Furthermore, this type of currency runs on a decentralized system meaning there is no central governing body. Low latency refers to the time interval between a cause and effect of something. In financial trading terms, it is a technical factor that allows trading systems to detect opportunities available in the market and exploit them successfully in the shortest time possible.
Crypto strategies that use the low latency method have proven to not only be profitable but also advantageous and beneficial. In this article, we shall highlight some of those benefits.
Trading systems have embraced an algorithmic (something similar to a formula) trading system that reacts to the market trends faster than the competitors to increase the profitability of the traders. This is referred to as Crypto-arbitrage. To arb is to buy and sell simultaneously to make a profit from the price difference. It works just like the stock markets but is faster and more efficient. There are different types of arbitrage, namely: simple, triangular, convergence and future index.
Low latency Crypto strategies offer a variety of benefits for traders, some of which have been highlighted in the text but others include:
A trader who uses Crypto-arbitrage over classic arbitrage gets the advantage of extra revenue because he gets the upper hand in the discrepancies involved in the exchange rates and takes advantage of them. It's all about getting the right data when you need it.
High Frequency Trading
Low latency strategies automatically mean high frequency trading, and there is no more holding-up as it was previously. You buy and sell at the same time and gain a profit that would later not be identified. The system works in seconds, it works on a less than 40 millisecond algorithm, you just have to know the best time to execute it.
Risk Free Profit
In reality, using Crypto-arbitrage means a lot of risk on your shoulders, but undertaking a low latency module, you can significantly reduce the risks to close to zero. This is because you can use the algorithm to determine the state of the market and when you should trade for the best results.
In summary, low latency strategies discourage the old ways of trading that advised one to wait for the markets to rank high and low so that one can trade, but now, the low latency allows you to manipulate the data and get ahead of competitors. This means greater rewards for you.