What is HFT (High Frequency Trading)?

High Frequency Trading is translated as high-frequency trading, which involves making many trades in a very short period of time. This way of trading is the result of the evolution of computerization in financial markets. However, it is still controversial, as from time to time there are claims that it leads to mini-crash. The biggest issue here is the ability to make trades before other traders.

 

How was HFT created?

In the stock market, or Forex, time is of great importance in making trades. There, trading has always been based on the principle of first-come, first-served, and it is by acting in this way that traders with the help of HFT work out a profit. Until a dozen years ago, it could take even a few seconds to make a trade. Although computers have greatly sped up all processes, traders still struggled to shorten the time. Year after year, every second, millisecond was fought for, and now even the nanosecond is fought for, because it makes a huge difference. And that’s how shortening the time for making trades created a phenomenon called high-frequency trading. Of course, this advantage is used primarily by trading systems that automatically make investment decisions.

What is the profit from HFT?

People who hear about profit will probably be discouraged at first, but in fact, getting to know HFT better, you will find out that this profit through accumulation can be really high. Its size, usually reaches a few pennies per operation. The snag is that the operations are made a whole lot, in a matter of seconds, so also the profit with the accumulation of all such transactions gains significantly in mass.

Will the speed of execution of HFT transactions be even faster?

Currently, HFT software runs on the fastest possible Internet connections, but this is still an unsatisfactory result, so specialists are working to improve performance. The faster the speed of transactions a brokerage house offers, the more investors will be willing to invest in a given place.

What is the operation of HFT based on?

Exchange rates and rates on stock exchanges, from moment to moment record changes in prices, these are barely noticeable changes, but they are what the system uses and the investor earns from them.