HFT (High-Frequency Trading)
Racing to profit at the speed of electricity
Definition
High-Frequency Trading (HFT) is a form of algorithmic trading characterized by extremely high speeds (microseconds), high order submission rates, and very short holding periods. HFT firms use co-located servers (physically placed near exchange matching engines), ultra-low latency networks, and sophisticated algorithms to execute thousands to millions of trades per day. HFT strategies include market making, latency arbitrage, and statistical arbitrage. HFT firms provide liquidity but have also been criticized for front-running and market instability.
Example
An HFT firm detects that the same ETF trade is about to execute on both NYSE and NASDAQ by analyzing order flow microstructure. Their algorithm sends buy orders on one exchange and sell orders on the other within 10 microseconds (0.00001 seconds). The profit per trade is $0.001, but multiplied by 10 million trades per day = $10,000 daily profit. Co-located servers reduce latency to under 1 millisecond from exchange matching engines.
Related Terms
Frequently Asked Question
What is HFT?
High-Frequency Trading uses ultra-fast computers to execute millions of trades per second. HFT firms profit from tiny price discrepancies and provide liquidity, but are criticized for creating unfair advantages in speed-dependent markets.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.