Latency Arbitrage Mechanics - Quant Trader Interview Question
Difficulty: Medium
Category: Market Microstructure
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Topics: latency-arbitrage, market-making, HFT, market-microstructure
Problem Description
A high-frequency trading firm has a direct data feed to Exchange A, which is 50 microseconds faster than the data feed to Exchange B. They observe that the price of a particular stock increases by 0.01 dollars on Exchange A. Assuming the price on Exchange B has not yet updated, what is the firm's best course of action, and what factors are most critical to its success?
Consider the following constraints:
The firm can execute trades on both exchanges simultaneously.
Round-trip latency from
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