The following is a guest post by Investoo.com. Launched in 2013, Investoo.com is the world’s biggest online trading school with 650+ video lessons and 50,000+ active members.
High Frequency Trading (HFT) is a type of algorithmic trading in which large volumes of assets are bought and sold automatically at very high speed. HFT is a very popular form of trading. It can generate quick profits with steady win-rate on certain market conditions.
High frequency trading strategies involve algorithms that place extremely large number of trades every day, to capture inefficiencies in the exchange rate of financial assets.
Despite being a new form of trading, HFT has already made a deep impact on the markets in a number of ways. Here we look at both the positive and negative impacts of HFT.
In this article we are going to share a complete history of High Frequency Trading with the help of an infographic.
The emergence of HFT can be largely attributed to the technological advancements made over the last few years. Two key elements that have made HFT a possibility and that are most critical for its success are:
Low latency and latency arbitrage: Systems experience a time delay, or latency, when messages and data are processed and transmitted. Over the last several years, trading traders have been working to ensure that their systems have as low latency as possible, allowing them to receive and process information as fast, or faster, than their competitors.
Algorithms as competitive differentiators: High frequency trading is carried out by computers. Computers are instructed based on a series of algorithms which are developed by traders to match their trading strategies and represent competitive differentiators and are critical to the success of their traders.
Despite the increasing usage and popularity of HFT, it still faces a unique set of challenges which raise some questions about its future and further growth.
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