Guide To Achieving Ultra-Low Latency When Modernizing a Crypto Exchange

Have you created a cryptocurrency exchange for your clients? If yes, that's great, but it's not enough. You have to go beyond creating the exchange to upgrading it regularly. This is where modernization comes in: the process of improving a cryptocurrency exchange to respond to changing market demand, attract customers, and provide your clients with a flawless trading experience.

To do this, there are several elements to consider while updating your exchange, including security, user experience, regulatory compliance, and something that is frequently overlooked: latency.

Latency is critical while updating a cryptocurrency exchange, yet it is frequently overlooked because of its ease of omission. In this post, we will explain what latency is and why it is important when updating your cryptocurrency exchanges, as well as provide you with a 6-step procedure for modernizing your exchange.

What is Ultra Low Latency Anyway?

Have you ever thought about the possibility of missing a trade because of a 1-second delay?

It happens in the world of crypto trading today, where high-frequency trades are executed in less than a millisecond. Truly, the saying that time is money now counts more than ever in the crypto space.

What could lead to this situation, losing a trade because of a delay, is termed latency. It refers to the delay or lag in the amount of time it takes for data to move between two points in a trading system.

This delay could ultimately lead to the loss of profits. This is why reducing that delay as much as possible is paramount.

Once again, this is where Ultra-Low Latency comes in.

Ultra-low latency trading can be defined as a system capable of processing data in nanoseconds, compared to standard low latency which is measured in milliseconds or microseconds. In simpler terms, ultra-low latency means faster execution, which is key for a responsive and reliable exchange.

The next thing on your mind might be, "How do I accomplish this?"

Ariel Silahian, head of Electronic Trading at SiS Software Factory, has this to say regarding ultra-low latency.

"It is not just about going faster; it's about designing a sleek, custom-built engine capable of conquering those tiny fractions of time that make all the difference in high stakes trading"

As seen by his remark, the solution rests in modernizing, given that you currently have a cryptocurrency exchange.

It's time to discuss the 5-step procedure to modernize a cryptocurrency exchange, but first, let's look at how latency affects crypto trading.

How Latency Affects Crypto Trading

1. Speed of execution

As mentioned earlier, order execution delays due to high latency causes traders to lose profits or miss out on lucrative market opportunities. Trading platforms have to be swift in executing orders to minimize the effect of price fluctuations.

2. Automated trading

Many cryptocurrency traders utilize algorithmic trading strategies that require fast order execution and data analysis. Hence for these traders to effectively implement their tactics and maintain dominance in the market, having low latency is essential.

3. Volatility in the market

Crypto markets are famously unpredictable and highly volatile. Executing trades at desired prices can be challenging due to latency issues, which can magnify the impact of price fluctuations. Slippage occurs when there is a discrepancy between the anticipated trade price and the actual executed price, often caused by market fluctuations or delays.

4. Strategic edge

In crowded cryptocurrency marketplaces, the ability to trade quickly can give you a competitive edge. Speedy traders hold a competitive edge over their slower counterparts, enabling them to secure more lucrative prices.

5. The impact of HFT

High-frequency trading companies depend on ultra-low-latency technologies to thrive. They have a significant influence on the market, exacerbating latency-related issues for retail traders through their swift handling of high volumes of orders.

6-step Modernization Approach with the Aim of Ultra-Low Latency

There are 6-step processes to effectively redesign, optimize and update your cryptocurrency exchange.

Let’s walk you through the process:

Step 1: Define the new architecture

The first step in modernizing a cryptocurrency exchange is to define what the new architecture would contain. Here you want to be thinking about features that would solve both current and future problems. This includes speed, a direct access gateway and a deterministic matching engine.

Step 2: Integration and Compatibility

The next step in the process is to ensure that the elements of the new architecture fit together seamlessly with the existing framework. This is very important because you want to make sure that the new technologies you are adding do not override the old but rather co-exist with it and even better, improve it.

Step 3: Performance Benchmarks

Setting specific goals, such as achieving sub-millisecond latency and processing up to 100,000 orders per second, is critical to guaranteeing the competitiveness of the crypto exchange as well as its ability to handle large levels of activity.

Step 4: Quality Assurance and Testing

With a high-performance system in place, you must ensure that it is both dependable and speedy. This is where comprehensive quality assurance (QA) and testing come in. This kind of extensive testing ensures the dependability that traders need and rely on.

Step 5: Knowledge Transfer

In this step, you want to make sure that the team you're working with has the right knowledge base, allowing you to avoid relying solely on external providers. This way you dramatically reduce risk, ensuring that your projects stay on track even when critical team members are absent.

One solution to this is to work with a highly experienced partner like WL Global. They provide substantial benefits in terms of knowledge transfer between engineers and technical teams.

Step 6: Future-proofing the Exchange

The final step in modernizing your cryptocurrency exchange is to ensure its long-term viability. It is critical to create a system that is not only constructed for today but also capable of scaling and adapting to whatever the future holds.

We're talking about choosing technologies and architectural frameworks that can scale with your business, so you're never caught off guard as trading volumes rise or new market opportunities develop.

Case Studies

Now, let's look at some real-life cases of crypto exchanges that have been able to achieve ultra-low latency by modernizing their systems.

Binance:

You've most likely heard of Binance. One reason it is so popular is because it's known for quickly and accurately executing trades. This can be attributed to the fact that it focuses on ultra-low delay. Binance has invested a lot of money into improving its technology infrastructure, using advanced matching engines, and putting in place direct market access (DMA) solutions. All this is not news; but what do we learn from this?

Lessons Learned

Binance can maintain very low latency because they are always improving their hardware and software systems, keeping an eye on latency metrics, and forming strategic relationships with technology companies that offer high-performance trading solutions.

Kraken:

Kraken is another exchange that regularly upgrades to cut down on latency and data transfer times.

Lessons learned

Kraken's path to ultra-low latency shows how important it is to keep an eye on things, test their performance, and make sure the system is running at its best. They have been successful in the competitive world of crypto exchanges by focusing on new technologies and meeting the needs of the market.

Conclusion

Modernization is the key to staying ahead of the competition, getting ahead of the curve, and giving traders the great trading experience they want.

Now is not the time to let latency problems and inefficient operations slow down your trade.

Our platform provides the tools and support to achieve ultra-low latency for your crypto exchange. Reach out to us today to discover how we can help you optimize your system for peak performance.

FAQs

Q1:What is latency, and why is it important in crypto exchanges?

Latency is the time it takes for data to move from one place in a trading system to another. It's important in crypto exchanges because not managing it can cause traders to lose money and miss out on trading chances.

Q2:What are the key steps involved in modernizing a crypto exchange for ultra-low latency?

To upgrade a crypto exchange for ultra-low latency, describe the new design, ensure compatibility with the old framework, set speed goals, ensure system reliability and quickness through testing and quality assurance, focus on knowledge sharing to reduce risks, and choose technologies and systems that can grow and change to meet market needs.

Q3: How can knowledge transfer and team development contribute to latency reduction efforts?

Sharing knowledge and building teams help cut down on latency by making sure that everyone on the team has the skills they need to handle and improve the trade. This ensures that the project can continue when some members of the team are absent.