Chapter 10

Delving into High Frequency Trading

In This Chapter

arrow Getting a firm hold of what high frequency trading is

arrow Recognising what high frequency traders do

arrow Looking at the future

High frequency trading (HFT) is a specific subset of algorithmic trading. Whereas large institutions use algorithmic trading to place their orders in the market as a form of order handling and management, high frequency traders use superfast proprietary trading programs to trade in and out of positions, trying to make small profits out of each trade.

Although HFT may appear to be a recent phenomenon based on the growing publicity that it’s receiving, in fact it’s a natural progression of the markets. Traders and investors have always searched for technological advantages that can be used for profitable investing. Trading has always been at the forefront of technological change, and HFT is a result of the combination of traders looking to make a profit and technology helping them on their way. First came the computers and then the trading algorithms, followed by HFT.

This chapter explains in great detail what HFT is. No other form of trading has caused as much controversy as HFT, and in this chapter ...

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