Another example for people to appreciate what a small latency advantage means. Consider SPX options which is a huge market. These “trade on CBOE” which is a Chi

Another example for people to appreciate what a small latency advantage means. Consider SPX options which is a huge market. These “trade on CBOE” which is a Chicago exchange - but they physically reside in NJ. Now consider SPX futures - ES - on CME, physically in Aurora. Now imagine a 20-tick / 5-handle “sweep” in the ES — “sweep” is instantaneous price move (either up or down). Not “very fast” but exactly that - instantaneous. These happen as a result of large incoming aggressor order taking out many book levels at once. Sweeps can be of different magnitude (from just few ticks all the way to max allowed per CME’s “velocity logic”) - but they happen all the time. If you know enough about e.g. ES futures but have never seen sweeps, chances are you didn’t have access to the right tools/platforms. Even some supposedly-professional-grade platforms like TT or CQG do not show trade data with enough detailization to see these. Anyway... why is this important? Because immediately following the sweep in e.g. ES, option prices in e.g. SPX options are temporarily way off. Dutch market makers have not yet moved their options quotes, because they do not yet know about the sweep - at least not in NJ. If you can somehow get orders to NJ faster than market makers can cancel their option quotes, you can take out hundreds of mispriced options. Multiple expires, dozens of strike, puts and calls. Very juicy bunch of stale quotes. PnL... well that gets tricky. On one hand, just this one example is in theory worth hundreds of million per year if market did not respond. But the market will respond. That’s inevitable. No one enjoys being ripped off for too long, so if they cannot defend they will either leave the market or set quotes wide enough that they are never mispriced. The same goes for any other “latency arbitrage” game. I always love how people throw numbers like “this is worth X”, almost always assuming status quo. HFTs are very responsive to market conditions. If I run a strategy that’s been making money every single day for 10 years and all of a sudden it starts losing - I press the pause button and go do some serious analysis. So maybe I will let you have it for few hours - but after that if I can’t compete I’m out. So it’s not that simple.