High Frequency Trading (HFT)

Extracted Attributes

• Type

  Algorithmic automated trading system

• Primary Goal

  Capture minuscule price differences (arbitrage) and high Sharpe ratios

• Latency (2015)

  740 nanoseconds (billionths of a second) for order submission

• Key Characteristics

  Co-location, high turnover, high order-to-trade ratios, short-term investment horizons

• Latency (CBOE BYX 2018)

  64 microseconds for order processing

• Market Share (2008-2009)

  42% of trading volume in large-cap stocks on NASDAQ and NYSE

• Equity Market Volume (2016)

  10-40% of total volume

• FX and Commodity Volume (2016)

  10-15% of total volume

Timeline

• HFT begins accounting for approximately 42% of trading volume in large-cap stocks listed on NASDAQ and NYSE through 2009. (Source: ScienceDirect)

  2008-01-01

• The Flash Crash occurs; HFT liquidity providers rapidly withdraw from the market, contributing to extreme volatility. (Source: Wikipedia)

  2010-05-06

• Technological advancements allow trading orders to be submitted within 740 billionths of a second. (Source: ScienceDirect)

  2015-01-01

• HFT initiates 10-40% of equity trading volume and 10-15% of foreign exchange and commodity volume globally. (Source: Wikipedia)

  2016-01-01

• U.S. equities exchange CBOE BYX reduces order processing times to 64 microseconds. (Source: ScienceDirect)

  2018-01-01

High-frequency trading

High-frequency trading (HFT) is a type of algorithmic automated trading system in finance characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no single definition of HFT, among its key attributes are highly sophisticated algorithms, co-location, and very short-term investment horizons in trading securities. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second. In 2016, HFT on average initiated 10–40% of trading volume in equities, and 10–15% of volume in foreign exchange and commodities. High-frequency traders move in and out of short-term positions at high volumes and high speeds aiming to capture sometimes a fraction of a cent in profit on every trade. HFT firms do not consume significant amounts of capital, accumulate positions or hold their portfolios overnight. As a result, HFT has a potential Sharpe ratio (a measure of reward to risk) tens of times higher than traditional buy-and-hold strategies. High-frequency traders typically compete against other HFTs, rather than long-term investors. HFT firms make up the low margins with incredibly high volumes of trades, frequently numbering in the millions. A substantial body of research argues that HFT and electronic trading pose new types of challenges to the financial system. Algorithmic and high-frequency traders were both found to have contributed to volatility in the Flash Crash of May 6, 2010, when high-frequency liquidity providers rapidly withdrew from the market. Several European countries have proposed curtailing or banning HFT due to concerns about volatility. Other complaints against HFT include the argument that some HFT firms scrape profits from investors when index funds rebalance their portfolios.

Web Search Results

• High-frequency trading and market quality: The case of a “slightly ...

  Thanks to new microchips, orders can now be submitted within 740 billionth of a second (O'Hara, 2015). U.S. equities exchange, CBOE BYX, reduced order processing times to 64 microseconds in 2018 (Baldauf & Mollner, 2020). High-frequency trading (HFT) is an algorithmic trading (AT) type, which involves heavy order submission within latencies as low as nanoseconds. As of 2008 and 2009, HFT accounted for 42% of trading volume in the large cap stocks listed in NASDAQ and NYSE (Brogaard, Hendershott, & Riordan, 2014). By then, 26 HFT firms participated in 73.8% of all trades in the US equity market (Brogaard, 2010). Hagströmer and Norden (2013) report 25% to 50% HFT participation in the trading activity of 30 most traded stocks in Sweden. Based on the rest of the literature, Menkveld (2014) [...] The increasing volume of messages sent to the exchange by algorithmic traders stimulates a fierce debate among academics and practitioners on the impacts of high-frequency trading (HFT) on capital markets. By comparing a variety of regression models that associate various measures of market liquidity with measures of high-frequency activity on the same dataset, we find that for some models the increase in high-frequency activity improves market liquidity, but for others, we get the opposite effect. We indicate that this ambiguity does not depend only on the stock market or the data period, but also on the used HFT measure: the increase of high-frequency orders leads to lower market liquidity whereas the increase in high-frequency trades improves liquidity. We hypothesize that the [...] This study aims to develop a probabilistic model using machine learning techniques to identify high-frequency trading (HFT) based on order book data. The model enables precise intraday identifications, addressing the lack of a widely accepted framework for HFT identification and the inconsistencies arising from proxy indicators. Leveraging academic data, the model offers improved consistency and reproducibility for future HFT research. By incorporating fuzzy logic, the probabilistic model allows policymakers greater flexibility in shaping policies. The study utilises data from the BEDOFIH database of the French capital market and develops a robust classification model capable of accurately distinguishing HFT. Additionally, reverse engineering enhances the model’s interpretability by

• Understanding High-Frequency Trading (HFT) - Investopedia

  High-frequency trading (HFT) uses sophisticated computer programs to execute a vast number of trades in mere fractions of a second, offering significant advantages in speed and efficiency. HFT has improved market liquidity and narrowed bid-ask spreads, though its controversial nature raises concerns about market stability and fairness. Famous HFT firms like Tower Research Capital and Virtu Financial leverage this technology to capitalize on arbitrage opportunities and rapid market movements. Critics argue that HFT can result in significant market disruptions, as evidenced by the 2010 "Flash Crash," and that it offers large institutions an advantage over smaller traders. [...] Learn about our editorial policies ## What Is High-Frequency Trading (HFT)? High-frequency trading (HFT) leverages advanced computer programs and sophisticated algorithms to execute vast numbers of orders in mere fractions of a second. These algorithms rapidly analyze numerous markets and respond to varying market conditions to execute trades efficiently. Having the fastest execution speeds allows traders and financial institutions to capitalize on minimal price discrepancies for higher profitability, which distinguishes HFT through elevated turnover rates and order-to-trade ratios. ### Key Takeaways [...] ## The Mechanics of High-Frequency Trading Explained High-frequency trading is a type of algorithmic trading. Traders are able to use HFT when they analyze important data to make decisions and complete trades in a matter of a few seconds. HFT facilitates large volumes of trades in a short amount of time while keeping track of market movements and identifying arbitrage opportunities. Some of the key characteristics of high-frequency trading include: Trading at high speeds A large number of transactions executed Short-term investment horizons Take the Next Step to Invest

• High-Frequency Trading Explained: What Is It and How Do You Get ...

  ## What Is High-Frequency Trading? High-frequency trading is a type of automated trading that uses powerful computers to buy and sell financial assets incredibly quickly. The term “high frequency” refers to how quickly these trades are completed. They may take place in minutes, seconds or even milliseconds. One of the core principles of high-frequency trading is to generate small profits on a very large number of trades. Unlike long-term investing, which aims to make substantial returns on a few carefully selected assets, HFT strategies focus on capturing minuscule price differences on thousands or even millions of trades per day. While the profit from each individual trade is minimal, the sheer volume and speed at which they are executed can add up to substantial overall gains. [...] To achieve this, HFT firms rely on highly automated systems that integrate global market data, trading algorithms and ultra-low-latency infrastructure. Together, these systems continuously monitor multiple trading ecosystems, analyze price movements and place orders in real time. This level of automation allows high-frequency traders to process vast amounts of data and identify fleeting opportunities that humans would never notice on their own. For example, a price difference of just a fraction of a cent might exist between the same asset on two different exchanges. HFT algorithms can detect that discrepancy instantly — buying low on one exchange and selling high on another — thus capturing a small profit on each transaction. Repeated at a high volume and speed, these tiny margins add up [...] Can't find your company? Create a company profile. View All Jobs For Employers Log In Expert Contributors # High-Frequency Trading Explained: What Is It and How Do You Get Started? High-frequency trading involves using powerful computers to make a large volume of trades in a short span of time. Here, our expert explains the basic principles and outlines how to get started. Written by Alex Williams Image: Shutterstock / Built In UPDATED BY Abel Rodriguez | May 13, 2025 Traders can adopt countless styles in their work, but one of the most controversial and fascinating ones is high-frequency trading, or HFT. You might have already heard about it in passing but want to learn more.

• High-Frequency Trading Risks and Rewards - Phoenix Strategy Group

  Looking for a CFO? Learn more here! All posts Finance 3 min read # High-Frequency Trading Risks and Rewards Explore the dynamics of high-frequency trading, its strategies, benefits, and the associated risks that impact market performance. Published on September 10, 2025 Copy link High-Frequency Trading (HFT) is a type of algorithmic trading that uses ultra-fast computing to execute thousands of trades in milliseconds. HFT firms rely on strategies like market making, arbitrage, statistical modeling, and news-based trading to profit from short-term price inefficiencies. While HFT boosts market liquidity, narrows bid-ask spreads, and enhances price discovery, it also introduces risks like flash crashes, technical failures, and complex regulatory challenges. ### Key Takeaways: [...] High-frequency trading (HFT) thrives on real-time news, using it to make lightning-fast decisions and seize fleeting market opportunities. By analyzing live data from news feeds, economic updates, and other events that influence the market, HFT algorithms can respond to changes almost immediately. The secret lies in low-latency technology, which allows trades to be executed faster than any human could manage. This speed enables HFT firms to capitalize on brief market inefficiencies, reacting before prices have the chance to stabilize. With access to up-to-the-second information, these firms gain a crucial advantage in achieving precise pricing and boosting returns. ## Related Blog Posts [...] ## Main High-Frequency Trading Strategies High-frequency trading (HFT) plays a crucial role in maintaining market liquidity, and firms utilize a variety of strategies to seize fleeting opportunities. These strategies rely on advanced technology, lightning-fast data processing, and significant capital to stay competitive in the fast-paced U.S. markets. ### Market Making Market making is one of the core strategies in HFT. Firms act as intermediaries, continuously offering both buy and sell quotes for specific securities. Their profits come from the bid-ask spread - the difference between the buying price (bid) and the selling price (ask).

• High-Frequency Algorithmic Trading | Charles Schwab

  ## Ready for a better trading platform? Check out thinkorswim® ## What is high-frequency algorithmic trading? Broadly defined, high-frequency trading (a.k.a "black box" trading) refers to automated, electronic systems that often use complex algorithms (strings of coded instructions for computers) to buy and sell much faster and at much greater scale than any human could do (though, ultimately, people oversee these systems). Such systems are often designed to make just a tiny profit on each transaction, but through sheer speed and volume, they can generate large returns for their firms. [...] Skip to content Trading Tools # High-Frequency Algorithmic Trading Frequently asked questions about high-frequency trading (HFT) and how this technology impacts investors. August 4, 2025 High-frequency trading (HFT) or algorithmic trading is well-established in today's markets—and it's here to stay. But HFT isn't especially well understood, and it's often a source of controversy. One primary reason? There's not yet a widely accepted definition. Though the strategy has been around for decades, its use has picked up steam as rapid advancements in computing power and data analytics are applied to what people have been doing for centuries: buying and selling. Here are some frequently asked questions about HFT and algorithmic trading. ## Ready for a better trading platform?