Proximity hosting is an arrangement in which a trading firm places its server hardware in a data centre located near an exchange, so that orders and market data travel a shorter distance. The shorter path reduces latency, the delay between a firm deciding to trade and its order reaching the exchange's matching engine. The service is sold by data-centre operators, network providers and brokers, usually as rack space, power and a network link to the exchange.
The term is often set against colocation, where the firm's equipment sits inside the exchange's own data centre and connects through a short cross connect. Proximity hosting is in a separate building, perhaps a few kilometres away, so it is slightly slower but typically cheaper and open to firms that do not qualify for, or do not need, the exchange's own facility. Usage varies, and some providers use the two words interchangeably.