- Cryptocurrency exchanges have an inherent responsibility to transmit the real-time prices of the assets they are offering to their traders.
- Despite a crackdown by regulatory bodies, trading volumes have been pushed into dark liquidity pools in Europe.
- Many crypto exchanges are resorting to colocation by hosting their servers at major financial hubs such as New York, Tokyo, and London. This ensures that only the best bid offers will be executed.
Latency is known as the speed of data transmission for traders. It affects the pace at which they place their buy and sell orders on a platform. Low latency refers to the faster transfer of data in the system. In case, there happens to be a delay in the transfer of data, the price of the asset may slip which will affect the profit margin earned by a trader. It is more important for the crypto industry due to its volatility and prices can change within fractions of milliseconds. Some crypto exchanges in the market such as Bitfinex, Gemini, and HitBTC offer low latency in their platforms.
Hence, cryptocurrency exchanges have an inherent responsibility to transmit the real-time prices of the assets they are offering to their traders. The data can be either transmitted through a cloud-based feed, APIs, or through a live-streaming facility.
For an active trader, latency needs to be effectively managed and quantified for maximizing his odds of success. If pioneers of Cryptocurrency exchange development incorporate low latency into their platforms, they can fetch institutional investment soon.
On the contrary, cryptocurrency exchanges with high latency will process orders with a significant time lag leading to wrongly priced orders and missed opportunities, especially for the day traders.
For those exchanges ensuring low latency, they must have a variety of data sources and include details about a variety of assets such as equities and derivatives. Consistency can be assured by establishing direct exchange connections with the other players in the market using kernel bypass technology.
It should reduce the operational expenditure and remove the need for infrastructural investment. It must support different types of trading models such as regulated markets, multilateral trading facilities, alternative trading systems, and swap execution facilities. Concrete steps need to be taken to avoid a single point of failure within the market data system.
Issues faced in Cryptocurrency exchange development concerning latency
* Traders who operate in multiple platforms will experience discrepancies as there is a lack of uniformity as different exchanges follow their own set of standards.
* Since small exchanges in the market cannot afford powerful technologies like algorithmic trading or high-frequency trading executed by computers, their performance could suffer a dip.
* This affects mainly those who do day trading and not those who prefer swing trading or use other long-term strategies.
* Institutional investors and professional traders would want access to robust liquidity pools and improved infrastructure facilities for executing high-speed trading.
* There is also regulatory ambiguity present which leads to a lack of proper trade surveillance and possible chances of market abuse causing the ultimate loss of institutional trust.
* Growing cases of crypto exchange hacking attacks are a huge cause of concern to many investors as it gives rise to a feeling that their assets are not kept secure.
* Despite a crackdown by regulatory bodies, trading volumes have been pushed into dark liquidity pools in Europe.
* Even if exchanges happen to offer the best latency services, a trader’s poor internet connection can prove to be a disadvantage. Hence, it is best to invest in a better connection to not lose the trading benefits.
Why having low latency can prove to be a game-changer in cryptocurrency?
* It will enable more efficiency in the process of price discovery in markets.
* Though intense volatility can be expected in the short-term, it will stabilize in the long-term as the market continues to grow.
* Many crypto exchanges are resorting to colocation by hosting their servers at major financial hubs such as New York, Tokyo, and London. This ensures that only the best bid offers will be executed.
* Robust KYC (Know Your Customer) procedures and time-proven custody solutions are needed to ensure high-speed electronic trading to make the maximum gains out of the advantages of low latency.
* It can help in structuring and streamlining the market and promoting the faster speed of trade settlement and increased competition enabling quick progress.
Why Low latency is more important now than ever?
Gone are the days when the cryptocurrency market used to attract only retail traders and point-and-click traders, institutional players, hedge funds, and high-profile banks are fast entering the field now. There is more focus devoted to establishing systematic trading practices among the crypto trading community. Ensuring low latency will enable competitive prices for trade execution. Strong market participants from traditional markets can make their presence felt. It will improve the underlying quality of assets and contribute to more liquidity and better market fragmentation.
Hence the crypto industry needs to achieve the standards set by the institutional investors concerning latency. Lack of industry-standard connectivity is worrying as traders will find it tough to exploit price divergences across an array of trading venues.
For the lowest possible latency for a cryptocurrency exchange, a device containing an electronic trading algorithm implemented on a field-programmable gate array (FPGA) plugged directly into a dedicated exchange connection is the best option. Every participant on the network can make their own trade-offs.
We already have low-latency solutions provided by firms like Avelacom hosted on cloud platforms like Amazon Web Services (AWS), Google Cloud, and Microsoft Azure. Cloud to cloud connectivity ensures faster times to market, better order routing, and costs less than starting a traditional data center. Avelacom has successfully tied up with more than 80 global trading venues for facilitating easy cross-border and multi-asset trading in numerous languages for investment banks and trading firms. They support a wide variety of products such as futures, options, OTC swaps, and managed futures.
As the business of cryptocurrency exchange development experiences increased trading volumes and market volatility, they need to boost their capabilities to manage peak bandwidth requirements and improve their performance.