For the average person, 10 milliseconds is an imperceptible moment in time. For a forex trader, it can be the difference between profit and loss. Latency. That is, data transmission delay, is one of the most underestimated factors in foreign exchange trading. In this article, we explain exactly what latency is, how to measure it, and what to do about it.
What is latency and how does it occur?
Latency (in English latency or ping) is the time elapsed from when you send an instruction from your computer until the broker receives and confirms it. Technically, this is the duration for a data packet to travel there and back, hence the abbreviation RTT (Round-Trip Time).
Latency occurs at every stage of the journey:
- Physical distance - The signal travels through optical cables at approximately the speed of light, but physical distance always plays a role.
- Number of hops - the more routers data passes through, the higher the latency
- Network quality - overloaded backbone lines or poor-quality ISPs increase latency
- Hardware - slow network cards or an overloaded processor on your computer
How to measure ping to your broker's server
Before selecting a VPS server, you should know where the broker physically operates its servers. Most brokers state this in their documentation or upon request. Then simply open the command line (cmd on Windows) and enter:
ping server.vasbroker.comor for continuous monitoring:
ping -t server.vasbroker.com (Windows)ping server.vasbroker.com (Linux/Mac)
The result will show your average latency in ms. The goal is to get below 10 ms for scalping and below 30 ms for swing trading. If your home latency is 80+ ms, a VPS server is essential for you.
Latency comparison: Local PC vs VPS vs datacentre
| Connection method | Typical latency to an EU broker | Suitable for | Slippage risk |
|---|---|---|---|
| Mobile internet (4G/5G) | 50-200 ms | Occasional monitoring of positions | Very high |
| Home WiFi | 40-100 ms | Swing trading, monitoring | High |
| Home cable internet | 20-60 ms | Position trading, swing | Medium |
| VPS in the Czech Republic (Prague data centre) | 5-20 ms | EA, automated strategies | Low |
| VPS in the same data centre as the broker | <2 ms | Scalping, HFT, all EAs | Minimum |
Impact of latency on slippage: Specific figures
Slippage is the difference between the price at which you intended to execute a trade and the price at which it was actually executed. In the forex market, prices move at 1-10 pips per second under normal conditions, and up to 50-100 pips per second during news releases.
If your order has a latency of 80 ms (0.08 seconds) and the market moves an average of 5 pips per second:
Movement at 80 ms = 5 pips/s × 0.08 s = 0.4 pip slippage
With 100 trades per month and a lot size of 1.0 EUR/USD:
0.4 pips × $10/pip × 100 trades = €400 unnecessarily lost monthly
Per year: 4 800 Kč loss solely due to latency
In scalping, where the target profit is typically 3-10 pips per trade and you execute dozens or hundreds of trades daily, latency can literally be a strategy killer. Slippage of 1-2 pips on each trade can turn a profitable strategy into a losing one.
Examples of losses from scalping caused by high latency
Scenario 1: Scalping EUR/USD with a target of 5 pips
The trader uses a strategy with a target of 5 pips and a stop-loss of 8 pips. With a latency of 60 ms, the average slippage is 0.3 pips on entry and 0.3 pips on exit: a total of 0.6 pips per trade. At 50 trades per day, this means a loss of 30 pips daily just on slippage, i.e., $300 at 1 lot.
Scenario 2: News trading upon NFP release
When Non-Farm Payrolls are released, the market moves 50-200 pips within seconds. A trader with a latency of 100 ms sends an order when the price is at 1.1050, but it executes at 1.1058, resulting in slippage of 8 pips. At 1 lot, this amounts to $80 on a single trade.
How to minimise latency in forex trading?
There are several ways to reduce latency:
- Get a VPS server - most effective solution, latency drops from tens of ms to single-digit ms
- Find out the broker's server locations - select a VPS as close to the broker as possible
- Use a wired connection - WiFi adds variability and latency
- Disable unnecessary processes - do not run anything else on the business computer
- Consider colocation - highest level; your server physically located in the broker's data centre
Conclusion: Latency is a figure you should know
Latency is not an abstract technical concept. It is a direct factor affecting your business results. Especially for scalpers, EA traders and everyone trading at higher frequencies, minimising latency is just as important as having the right trading strategy.
A VPS server located in a professional data centre with good connectivity to broker servers is the most practical and accessible way to keep latency under control. An investment of 499-1499 Kč per month will be recouped during active trading through the first saved slippages.
Reduce latency to a minimum with FastVPS.cz
Our VPS servers in the Prague data centre offer latency under 10 ms to major European brokers. Try it yourself.
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