How Prop Trading Firms Benefit from Low-Latency Networks

In the ultra-competitive world of proprietary trading (or prop trading), speed is a great advantage. When decisions are made and trades are executed in milliseconds, the slightest delay can mean the difference between profit and loss. That’s where low-latency networks come into play.

As trading strategies become more sophisticated and market data more voluminous, the infrastructure that supports these activities must evolve. Low-latency trading infrastructure has emerged as a critical differentiator for prop trading firms looking to stay ahead of the curve. We want to unpack the key components of low-latency networks, explore their impact on prop trading, and show how firms can leverage them for sustained competitive advantage.

What is a Low-Latency Network?

A low-latency network refers to a communication system designed to transmit data with minimal delay. In the financial trading world, latency is measured in microseconds (µs) or milliseconds (ms), and even the smallest reduction can drastically influence trading outcomes.

Low latency in trading networks is achieved through:

• Proximity to exchanges (colocation)

• Optimised routing and shortest-path data delivery

• High-speed transmission mediums like fibre optics or microwave networks

• Purpose-built infrastructure designed for ultra-fast data processing

The goal is simple: get trade orders to the market and market data back to the trader, faster than the competition.

What is Proprietary Trading (Prop Trading)?

Proprietary trading involves a firm trading financial instruments using its own capital, rather than on behalf of clients. Prop trading firms make money by speculating on market movements, and they rely heavily on quantitative strategies, complex algorithms, and real-time data.

Key characteristics of prop trading firms:

• Firm-owned capital is used to take on risk.

• High-frequency trading (HFT) is often employed.

• In-house technology stacks are common, with a focus on automation and analytics.

• Latency-sensitive strategies are typical. These firms often compete to be the first to spot and react to price changes.

Because prop firms' strategies are often based on capturing micro-opportunities in the market, prop trading firms are disproportionately affected by delays in data transmission or order execution.

The Relationship Between Low Latency and Prop Trading Success

For prop trading firms, every microsecond matters. The correlation between low latency and trading profitability is direct and measurable.

Let’s consider a few scenarios:

• Arbitrage Opportunities: If one market lags behind another, firms with the fastest infrastructure can identify and exploit the price differential before others.

• Market Making: Market makers provide liquidity by continuously quoting prices. Faster response times mean tighter spreads and better profits.

• HFT Strategies: These rely on high volumes and minimal margins. Without ultra-low latency, the viability of such strategies disappears.

A study by the TABB Group showed that a 1 millisecond advantage in trading applications can be worth $100 million a year to a major brokerage firm.

That same competitive edge applies even more critically to leaner, agile prop trading firms competing on speed and strategy execution.

Key Benefits of Low-Latency Trading Infrastructure for Prop Firms

1. Faster Market Access

A low-latency network reduces the time it takes to send and receive data from exchanges. This faster access enables prop firms to act on market movements before they’re priced in which is a key differentiator when competing against other algorithmic traders.

2. Better Fill Rates and Reduced Slippage

When trades are executed quickly, there’s less chance of price slippage which can be the difference between the expected price of a trade and the actual executed price. This can drastically improve performance for firms executing high-frequency or high-volume trades.

3. Enhanced Strategy Execution

The best trading strategies are only as good as their execution. Even a brilliantly designed algorithm won’t perform optimally if there’s lag in the infrastructure supporting it. Low-latency networks enable prop firms to fully capitalise on their intellectual and technological investments.

4. Increased Competitiveness in HFT Environments

Speed is the currency in high-frequency trading. Low-latency infrastructure ensures that firms aren’t just competing but that they’re winning against competitors and other firms. It allows prop firms to reduce time-to-market for new strategies, enter/exit positions faster, and stay ahead of market shifts.

5. Improved Risk Management and Real-Time Analytics

Real-time data is crucial not just for strategy execution but also for managing exposure. Low-latency networks support advanced analytics and risk models that need immediate feedback, helping firms identify and mitigate risk on the fly.

What Makes an Optimal Low-Latency Network?

To truly benefit from low latency, prop trading firms should consider the following when evaluating infrastructure partners or building their own stack:

• Proximity to Exchanges: The closer your servers are to the market's matching engine, the better. Colocation is a must-have.

• Network Architecture: Avoid hops and bottlenecks. Flat, direct architectures with optimised routing reduce delays.

• Transmission Medium: Microwave and millimetre wave links can offer lower latency than fibre in certain geographies.

• Redundancy and Reliability: Low latency is useless without uptime. Resilience and redundancy are crucial.

• Customisability: One-size-fits-all doesn’t work. Look for partners that tailor routes and infrastructure to your firm’s strategy.

The Role of BSO in Supporting Prop Trading Firms

BSO is a trusted partner to some of the world’s leading proprietary trading firms. Our ultra-low-latency trading infrastructure is purpose-built for financial markets, offering:

• Colocation at over 40 global exchanges

• Dedicated fibre and wireless connectivity

• Custom network routes for optimised latency

• Guaranteed SLAs and round-the-clock monitoring

• Expert support and continuous innovation

By combining technical excellence with deep market expertise, BSO empowers prop firms to reduce latency, mitigate risk, and gain the edge needed to thrive in fast-moving financial markets.

Future Outlook: Why Low Latency Will Continue to Matter

While trading volumes and strategies evolve, the need for speed remains constant. Several trends will continue to make low-latency infrastructure essential:

• The rise of AI and machine learning in trading requires faster data ingestion and response loops.

• Global market fragmentation increases the need for rapid cross-venue connectivity.

• Real-time regulatory compliance (e.g., MiFID II, CAT) demands immediate reporting.

BSO is committed to staying ahead of these trends, continually refining our infrastructure and expanding our capabilities to meet the evolving needs of modern prop trading.

In a world where every millisecond counts, low-latency networks are not a luxury for prop trading firms. These firms rely on rapid execution, data-driven strategies, and real-time analytics to stay profitable and competitive.

By partnering with a provider like BSO, prop trading firms gain access to a global, optimised, and future-ready infrastructure that aligns perfectly with their latency-sensitive strategies.

Want to enhance your trading performance? Contact BSO today to explore our low-latency solutions.

Frequently Asked Questions

What is considered low latency in trading?

Low latency in trading typically refers to round-trip data transmission times of under 1 millisecond. In high-frequency trading, latencies of microseconds are often the target.

How does colocation reduce latency?

Colocation places a firm’s servers physically near the exchange’s matching engine, significantly reducing the time it takes for order messages to travel between the firm and the market.

Is microwave connectivity better than fibre for trading?

Microwave transmission can be faster than fibre over short distances because it follows a straighter path (line of sight) and has less refractive delay. However, it can be more affected by weather and requires line-of-sight between towers.

Do all trading strategies require low latency?

Not all strategies depend on low latency. However, strategies like arbitrage, market making, and HFT are highly sensitive to delays and can benefit enormously from low-latency infrastructure.

Why should prop firms partner with a provider like BSO?

BSO offers tailored, ultra-low-latency networks, deep financial market expertise, and a global footprint which are all essential for prop firms aiming to outpace the market.