Co-location
Market Microstructure glossary · High Frequency Dynamics & Latency Arbitrage
Definition
The practice of placing trading servers in the same data center as the exchange's matching engine, minimizing network latency.
Co-location in plain English
Every order you place travels as a signal through cables to the exchange's computer that pairs up buyers and sellers — and even at nearly the speed of light, distance costs time. Co-location means a trading firm rents space to put its own computer in the very same building (often the same room) as the exchange's matching computer, so its orders arrive a hair sooner than someone trading from across the country. It's like getting to stand at the front of the concert-ticket line instead of the back: in fast trading, being first by even a millionth of a second can decide who gets the good price.
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