High-Frequency Trading (HFT)
High-Frequency Trading (HFT) is a type of algorithmic trading that includes executing a large number of orders in parts of a second. HFT use high-frequency financial data and sophisticated electronic trading devices to break down markets and execute a large number of orders inside short time spans.
High-frequency traders move all through trades at a quick pace, expecting to capture small amounts of profit each time that, over the long haul, aggregate into a substantial sum of profit. Commonly, the algorithms with quicker execution speeds enjoy an upper hand over calculations with more slow execution speeds.
HFT can further develop market conditions as it gives a consistent flow of liquidity and possibly eliminates high bid-ask spreads. Due to this positive impact on the markets, a few exchanges boost HFT by offering rebates or decreased fees for HFT suppliers.
Then again, HFT can fundamentally increase the volatility of the markets as calculations can settle on choices in the span of milliseconds with practically no human collaboration.
HFT is likewise a disputable trading method in light of the fact that the liquidity it gives can show up and vanish very quickly, keeping different traders from having the option to exploit it.
It is estimated that HFT calculations are responsible for a considerable amount of the trading volume in the global markets. Due to the complexity of these calculations, commonly just large financial institutions approach this trading method.
Highlights
- It adds liquidity to the markets and kills small bid-ask spreads.
- HFT is condemned for permitting large companies to gain an upper hand in trading.
- HFT is complex algorithmic trading in which large numbers of orders are executed in practically no time.
- One more protest is that the liquidity created by this type of trading is fleeting — it vanishes in practically no time, making it unimaginable for traders to exploit it.
