Derivative: How props outpace retail investors

Retail investors dabbling in derivatives often get the short end of the stick. But few know that they lose out to proprietary traders or props-brokers trading on their own account with sophisticated algorithms.

- Ram Sahgal

Prop traders pay hefty sums to place their server racks in the exchange data centre (called colocation), something retail investors can't do. This enables props to access data of price movements fractions of a second quicker than retail investors, who use Internet-based trading and mobile apps.

The National Stock Exchange of India (NSE) charges ₹12 lakh to colocate a (full rack) server in its data centre, plus connectivity charges and taxes. The exchange started the colocation facility in 2009 so that brokers located in, say, Mumbai and Chennai would get data feeds at the same time, despite the Mumbai broker being closer to the exchange's servers.