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Market Data API

The Role of Latency in Cryptocurrency Data

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Latency plays an important role in the world of cryptocurrency. It impacts everything from the speed of trade execution to the accuracy of market data. This blog post is all about what latency is, why low latency is crucial in crypto, and how various factors influence it. We’ll explore how we, as a company ensure minimal latency in our Market Data API and EMS Trading API.

What is latency?

Latency in simple words is the delay within a system. In the context of networks, latency measures the time it takes for data to travel from point A to point B. In the ideal situation the data transmission would happen instantly, but in reality, it’s slowed by many factors:

  • Distance
  • Infrastructure
  • Network congestion

 

Source: keycdn.com

Data latency

Data latency refers to the delay between the time data is created and the time it is available for use. In the context of cryptocurrency, it is the time taken for price updates and market data to be transmitted from exchanges to traders. Low latency means faster data delivery, which is crucial for high-frequency trading strategies where every millisecond counts.

“The information cannot travel faster than the speed of light. It’s crucial for understanding data latency. For instance, data from an exchange in the APAC region, reaching the United States, can take a minimum of 200 milliseconds. This delay is an inherent limitation due to the speed of light and cannot be overcome. It’s physically impossible.” – Artur Pietrzyk, CEO @CoinAPI

Why is low latency so important in crypto?

There are areas of cryptocurrency trading and market analysis that could be directly influenced by high latency. The speed of data transmission is one of the key factors in several situations.

  1. High-frequency trading
    These traders rely on executing a large number of orders at extremely fast speeds. Low latency ensures that they can gain on market inefficiencies and price discrepancies before other market participants do. The faster the network the more they earn.
  2. Slippage
    It occurs when there is a difference between the expected price of a trade and the actual executed price. Lower latency minimizes the chances of slippage, ensuring trades are executed at the desired prices. In cases like that fractions of a second matter.
  3. Arbitrage trading
    Traders exploiting arbitrage opportunities need to act on price differences across different exchanges quickly. Low latency enables them to make these trades before the price differences are gone.
  4. Real-time data access
    Traders need real-time data to make the best decisions. Low latency means that they receive up-to-date information, allowing for better risk management and decision-making. Top traders use the best real-time data insights via APIs like WebSocket from single exchanges or even better based on aggregated exchange rates.
  5. Algorithmic trading
    Many trading strategies are automated and depend on algorithms and bots that react to market changes in real-time. Low latency is essential for these algorithms to function fast on time, correctly, and profitably for the trader.
  6. Liquidity providers
    Market makers and liquidity providers rely on low latency to update their orders and spread quickly in response to market changes, ensuring they can offer tight spreads and maintain profitability.

The consequences of high latency

High latency can have negative impacts on your crypto market actions:

  1. Delayed Market Data: When market data is delayed, traders make decisions based on outdated information, which can lead to missed opportunities or suboptimal trades.
  2. Execution Delays: Trades executed with high latency may miss the desired price points, leading to increased slippage and reduced profitability.
  3. Increased Risk: Slower response times can result in higher risk, especially in volatile markets where prices change rapidly.

Latency measurement units

Latency, in the context of data transmission, is measured in terms of time delay. In the cryptocurrency market, latency is typically measured in nanoseconds (ns), microseconds (µs), and milliseconds (ms). Each unit represents a different scale of delay, which is crucial for traders, especially those using high-frequency trading strategies.

Let’s explore these measurements and their significance with examples from the cryptocurrency world.

  1. Milliseconds (ms) one-thousandth of a second
    Millisecond latency is more commonly encountered in broader trading and financial applications. While slower than microsecond and nanosecond latencies, millisecond latency is still considered very fast for most trading activities.
  2. Microseconds (µs) one-millionth of a second
    It’s more common in trading scenarios where rapid data processing is required but at a scale that is slightly more manageable than nanoseconds. Microsecond latency is still extremely fast and vital for many trading strategies.
  3. Nanoseconds (ns) one-billionth of a second
    This measurement is often used in high-frequency trading (HFT) environments where even the tiniest delay can impact trading decisions and profitability. In the world of cryptocurrency, achieving nanosecond latency requires extremely sophisticated technology and infrastructure.

“Most latency is the effect of the physical distance on earth and the indirectness of cable connections. This means that the farther the data has to travel and the more intermediate points it passes through, the higher the latency. To minimize this, direct connections and optimized routing are crucial.” – Artur Pietrzyk, CEO @CoinAPI

How CoinAPI deals with latency

We know that low latency is one of the most important features for our clients. We are doing our best to keep it super-low. How do we do it? In order to deal with latency, first, you have to know how high it is.

How do we measure and validate latency?

We measure and confirm latency using precise timestamping methods at various stages in the data flow. This includes:

  • Network Time Protocol (NTP): Synchronizing clocks across servers to maintain accurate time measurements.
  • Packet Capture Tools: Using tools like Wireshark to capture and analyze network packets.
  • Latency Monitoring Software: Implementing software solutions that constantly monitor and report latency metrics.

How is our latency so low?

We take great pride in having one of the lowest data latencies in the crypto market. In some cases, the data latency is below 1 millisecond! To achieve this as an API provider, we fulfill several key conditions:

  • Direct Connections: Establishing direct connections to exchanges and data centers.
  • AWS VPC Peering: Utilizing AWS VPC Peering for low-latency, high-bandwidth connections between our infrastructure and the customer’s.
Source: docs.aws.amazon.com
  • GeoDNS Routing: Using GeoDNS to direct traffic to the nearest data center.
Source: gcore.com
  • Optimized Network Paths: Utilizing optimized network paths and low-latency routes.
  • High-Performance Hardware: Deploying top-tier servers and network equipment.

Is the latency always low?

Latency is typically low, but it can increase during a failover.

Source: danevo.net

How do we handle failovers?

We have a plan in place for these situations, and our goal stays the same – to maintain the lowest possible latency.

  • Redundancy: Implementing backup servers to enable quick regional switches.
  • Automated failover: Using automated systems to reduce downtime.
  • Load balancing: Distributing traffic across multiple servers to ensure continuous service.

How does server load impact latency, and what mechanisms are in place to handle high traffic without degrading performance?

Server load can impact latency by increasing processing times. To handle high traffic effectively, we use:

  • Load Balancing: Distributing traffic across multiple servers to prevent any single server from becoming overwhelmed.
  • Auto-Scaling: Automatically adding resources during peak times to maintain performance.
  • Performance Monitoring: Continuously monitoring server performance and adjusting resources as needed to ensure optimal operation.
💡 See SingAlliance case study where low latency of data was one of the most important factors → Case study

Is there a difference in latency between self-hosted and managed cloud?

Yes, there is a difference in latency between self-hosted and managed cloud solutions, though it is generally minimal.

Self-hosted

  • Pros:
    • Lower latency, optimized for specific use cases.
    • Greater control over configuration and performance.
  • Cons:
    • Requires significant expertise and resources to manage.
    • Higher responsibility for maintenance and troubleshooting.

Managed cloud

  • Pros:
    • Easier management with no client-side maintenance required.
    • Scalability and flexibility are provided by the cloud service.
  • Cons:
    • Potential for slightly higher latency due to shared resources.
    • Limited control over specific optimizations.

Manage cloud – CoinAPI’s server latency

We use a combination of:

  • Equinix: For colocation services, providing high-performance, low-latency connections.
  • AWS: For scalable cloud infrastructure, offering flexibility and redundancy.

This hybrid approach allows us to leverage the strengths of both environments, ensuring optimal performance and reliability.

💡 READ HOW COINAPI ENSURES DATA ACCURACY AND SPEED HERE

Client-side configurations and best practices for the lowest latency

  • Optimized Network Configuration: Ensuring network settings are configured for low latency.
  • Direct Connections: Establishing direct connections to our data centers to minimize data travel time.
  • Efficient Code: Writing efficient, low-latency code for data processing to reduce execution time.
  • Regular Updates: Keeping software and hardware up to date to benefit from the latest performance improvements.

Latency comparison for CoinAPI’s plans

  1. Enterprise Plan:
    • Access Type: It is possible to have direct access to the sites or set up AWS VPC Peering.
    • Latency: Possible below one millisecond due to direct access or VPC Peering.
    • Example: If you set up AWS VPC Peering, the latency between your infrastructure and CoinAPI’s infrastructure will be less than one millisecond.
  2. Free, Startup, Streamer, and Professional Plans:
    • Access Type: Connections are established to the public endpoint with GeoDNS (routed to the closest site) (~20ms).
    • Latency: Depends on the distance between your location and the site where the connection is routed, typically around 20 milliseconds.
    • Example: If you are located in New York and the closest site is in Virginia, the latency will be approximately 20 milliseconds.

Conclusion

Do you want to be the best and gain an advantage over others? Well, there’s no other way around it, but to have the lowest latency data source possible – like Market Data API. CoinAPI and our products are all about reliability and low-latency real-time data access.

If you want to learn more: contact our sales team or read our documentation.

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