What Forex is and how to detect latency time of forex trading ?
You might have experienced some delay during a video call, where it takes a couple of seconds for your image and sound to reach the person you’re speaking with and vice versa. Same goes for online video games, browsing web pages and pretty much anywhere involving a network connection. This is called latency. Latency is basically the time it takes between a user’s action and the response to that action. Now in the aforementioned examples, the worst case scenario would be you slamming your desk and getting riled up before going on about your day. But when we’re talking about a market such as Forex, you could potentially lose your hard earned money due to a high latency that prevents you from closing a deal or trade! A market where prices fluctuate by the second, forcing you to act instantly and accurately. In a place like this, you want your latency at its absolute minimum. But let’s not get ahead of ourselves. First we should understand what forex is and how it works and then see how latency affects it.
What is Forex?
If you have traveled abroad, chances are you’ve exchanged your money. If so, then you have already participated in Forex trading without yourself knowing! Foreign Exchange (Forex or FX for short) is the marketplace for trading all the world’s different currencies (Japanese Yen, European Euro, United States Dollar, etc) and is currently the largest financial market there is with an average traded value of $6.6 trillion per day as of 2019 according to a triennial report from the bank for international settlements (which is a global bank for national central banks). Due to the sheer size and also its importance, Forex has attracted many participants including governments, companies, businesses and individuals. Governments use the Forex market when conducting business with other countries whether its borrowing money or offering aid. Companies might use it to facilitate their international trade and individuals use it for personal gains.
How forex trading works
Forex is like trading any other security except in Forex, you are trading two products (in this case, currencies) against each other. The two products are called a currency pair. When you make a forex trade, you are basically selling one currency and buying another. So when the currency you’ve bought moves up against the currency you’ve sold, you will profit. For example, let’s say the exchange rate between the Euro and the U.S. Dollar is 1.3. this means that every Euro is worth 1.3 Dollars. So in order to buy 1000 Euros, you will have to pay 1300 Dollars. If the EUR/USD rate rises to 1.5, you can now sell your 1000 Euros for 1500 Dollars, generating a profit of 200 Dollars.
Latency for Forex
Since Forex is a form of electronic trading, internet connectivity plays a major role. Timing is key and could mean the difference between a successful trade and a failed one. This is where latency comes to play. Second, or milliseconds to be more specific, determine the execution speed of a trade. A high latency could mean a slow and painful procedure while a low latency would bring you a swift process. A term which often pops up in Forex is Slippage. Slippage is a form of latency which defines the gap between the expected price of an executed trade and the price at which the trade fills. This happens because it takes a certain time for the order which you’ve sent to be carried out on the server. In this period, the prices might have gone up or down, Hence the significance of a low slippage time or better put, latency.
What affects your latency?
Internet Connection
There are a number factors affecting latency. First and foremost is internet connection. A sluggish connection might cause problems such as packet loss, resulting in a high ping time and latency. Complications with your ISP could reduce the speed of your connection to your forex broker.
Hardware
Another cause for high latency is hardware. Older and worn CPUs for example can generate latency and performance issues. Due to the massive load of data computers are required to deal with nowadays, your CPU might not be able to handle the process.
Distance
Even with a decent network connection and up to par equipment, a subtle yet very important matter which can’t be overlooked is the distance between you, the broker’s servers and where the trading is actually happening. The further you are from the trading servers, the higher your latency goes. This partly why a lot of brokers offer Forex VPS hosting services as a privilege to their customers. But what really is a VPS?
Forex VPS hosting
The solution for all the said drawbacks is called a virtual private server or VPS for short. There are a few advantages, or if you’re thinking to make your forex trading more than a hobby, necessities to having a VPS. Firstly, a VPS is online 24/7 and does not tire or get frustrated. After all we’re only humans and cannot dedicate our entire time and life to trading and even with enough dedication, things like power outages or cut outs in your connection, which are out of your control, will prove troublesome so having a private server at your disposal is highly recommended. Secondly, trading manually can only get you so far and with the rise of high frequency trading machines and expert advisors (bots that can automatically and intelligently conduct trades), you can’t possibly hope to keep up with the action so you’ll need something that can process huge amounts of data in a matter of milliseconds and be able to spontaneously act on them. And last but certainly not least, a VPS drastically reduces latency. Because ideally your server of choice is located close to your broker and is also secure and reliable for trading. Now if you want to up your trading game in Forex, you have to consider using a VPS. But how can you get one? Well, we may be able to help…
Forex VPS router hosting
Forex VPS router hosting provides a wide selection of options worldwide for you to choose from, closer than ever your Forex broker. We offer an uptime of 99.99% and a full admin access, so you can run multiple trading terminals seamlessly and at the same time. With an optimized infrastructures built for your needs, you will be able to elevate your trading skills to new heights and generate real profit…like never before!