Latency arbitrage and the synchronized placement of orders

Abstract

We argue that owing to traders’ inability to fully express their preferences over the execution times of their orders, contemporary stock market designs are prone to latency arbitrage. In turn, we propose a new order type, which allows traders to specify the time at which their orders are executed after reaching the exchange. Using recent latency data, we demonstrate that the order type proposed here allows traders to synchronize order executions across different exchanges, such that high-frequency traders, even if they operate at the speed of light, can no-longer engage in latency arbitrage.