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What latency is
Latency is the time a message takes to get from one computer to another. In trading, the message is an order, a cancel or a market data update, and the number that matters is usually the round trip: your order travels to the exchange and the confirmation travels back. It is measured in milliseconds (ms), thousandths of a second.
Latency is not bandwidth. A fast home connection can download a film in seconds and still take tens of milliseconds to deliver one small order to a matching engine hundreds of miles away. Bandwidth is how much data moves at once; latency is how long one message waits.
Where latency comes from
Four things add up on every round trip:
- Distance. Light in optical fiber covers about 200 km per millisecond, so every 1,000 km of cable adds about 5ms each way, and real cable routes are longer than a straight line.
- The last mile. Wi-Fi, home routers and your internet provider add delay and, worse, variation (jitter) when the network is busy.
- Routing. Every network hop between you and the venue adds a little, and public internet routes can change mid-session.
- Your computer. A platform competing with a browser, updates and sleep settings processes market data and orders later.
| From | Round trip to CME Globex | Typical |
|---|---|---|
| ParisHome internet | ~92ms | |
| Los AngelesHome internet | ~45ms | |
| MiamiHome internet | ~32ms | |
| AtlantaHome internet | ~18ms | |
| QuantVPSChicago VPS | 0.52ms |
The path of an order
When you click Buy on a futures platform, the order does not go straight to the exchange. A typical route to CME looks like this:
- Your platform (NinjaTrader, Quantower, Tradovate, R | Trader Pro and others) sends the order to your broker's or prop firm's order-routing servers, such as Rithmic, Tradovate or CQG.
- Risk checks. The routing provider checks the order against your account's limits.
- CME Globex. The order reaches the exchange gateway and the matching engine in CME's datacenter in Aurora, Illinois.
- Back to you. The acknowledgment, and later the fill, travel the same way back to your platform.
The first leg, from wherever your platform runs to your routing provider, is the one you control. For CME futures, run the platform on a Chicago VPS and that leg starts a short hop from CME Globex instead of crossing the public internet from your desk.
The order book and the DOM
Every futures contract has an order book: the resting bids (orders to buy) below the market and offers (orders to sell) above it. The highest bid and the lowest offer are the best bid and offer, and the gap between them is the spread. Most futures platforms show the book as a DOM (depth of market): a vertical price ladder with the size resting at each price, where you can place and move orders with a click.
Beside it, the time & sales tape prints every trade as it happens: the time, the price and the size. A chart is the same trades summarised into candles.
How orders execute
The order type decides how your order meets the book once it arrives:
- Market order: takes the best price on the other side right away. A large order, or a thin book, can fill across several prices.
- Limit order: buys at your price or lower (sells at your price or higher). If it cannot fill straight away it rests in the book and waits in a queue at that price.
- Stop order: waits until the market trades at the stop price, then becomes a market order (stop-market) or a limit order (stop-limit).
On CME Globex, most futures, including the E-mini and Micro E-mini equity index contracts, fill resting orders at the same price first in, first out: the order that arrived first at a price fills first. Some other products allocate by size (pro rata).
Queue position and slippage
Queue position is your place in line at a price. Under first in, first out, every order that reached the price before yours fills first, so a limit that arrives later can watch the market trade at its price and still not fill.
Slippage is the difference between the price you expected and the price you got. It comes from the spread, from the book changing while your order travels, and from size that walks through more than one price. On NQ one tick is 0.25 index points, or $5 per contract; on ES it is $12.50. A tick or two of slippage on every entry and exit adds up quickly.
Estimate it for your own trading with the slippage calculator.
What a VPS changes
A trading VPS changes the part of the route you control:
- Your platform runs in a datacenter next to the market, so orders and market data skip your home connection entirely. For CME that is Chicago, a typical 0.52ms round trip to CME Globex; see all locations.
- The platform runs 24/7 on dedicated resources, so platform-held orders and automated strategies keep working when your computer is off.
- You connect from any device with Remote Desktop; your connection speed affects how the screen feels, not how fast orders travel.
It does not change how the exchange matches orders, your broker's risk checks, or the market itself. Fast markets still gap, and a short route never guarantees a fill.
Next: connect your prop firm accounts on the VPS. If you skipped lesson 01, it covers the hardware that runs your platform: Standard vs Performance plans.