There are three facts - There is the display content and there is the actually entry of pricing and orders sizes and matching of orders to complete a purchase or sale. Whatever you see on the display is a reflection of something that has already occured, a past event transmitted. It is wrongly assumed by some traders that the display is an instaneous display of bid and ask quotes and sizes, and time, price and sales amounts. There is response latency and the degree of response latency determines how close the display is to the actual events, that is whether there is a "lag" (like that in computer games).
Response latency is defined as the amount of time that passes between the submission of an order (price, size, cancellation, etc.) and the reception of the electronic systems response to through a display or report. Response latency is relative because there are many different physical factors affecting it. Latency is measured at the physical level down to connecting wires and so that is why in the video there was great talk about being colocated near the data servers where latency is equalized by having the same length of connecting cable to data servers.
Naturally, all others outside of the data center will experience a greater lag, relative in degree to the online brokerage's physical trading infrastructure, one's connection type to that infrastructure and platform, and ones hardware workstation and speed setup. In short, given the difference in all those and more, what each person sees on the screen is slightly different and relative to the physical setup of others to the electronic matching engines.
Adding to response latency of electronic systems is the response latency of human beings to stimuli. There is also human response latency. People respond differently by time to stimuli presented. In general, consciousness is usually 500 or more milliseconds behind what we undergo. That is, we experience at a non-conscious level first (about 95% of all experiences) and then 500 milliseconds later we are conscious of what we have undergone. A half second may not seem like much but taking into consideration all other factors that we undergo, we can miss the boat when things are moving fast and we are not processing stimuli at the highest level possible. A price direction change can happen in a blink of an eye.
Not being able to distinguish the response latency of one's data feed as compared to others in the market is a problem. The greater the response latency or lag, the more likely one is to make a wrong decision in a fast moving stock or a slow one. It is a matter of seeing through the illusion of the display as it relates to the activity around each stock.
I have tricked myself several time when playing with AAPL which usually has a much larger spread than say FNMA. Prices go can up or down .20 in seconds. I would watch the display and guess up and the damn thing goes down, guess down and it goes up and it would seem like I could never get it right until I found the competing algo programs and had to work with a greater duration to buy, hold and then sell. The response latency I experienced was too large to accurately find the direction and so I was seeing price direction that occured too far in the past after it already had changed direction. My display was useless for that equity and I had to compensate by extended the duration and determining the algos in play. a mental exercise.
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