What is High-Frequency Trading (HFT)?

• High-frequency trading (HFT) is a trading method that uses powerful computer programs to transact a large number of orders in fractions of a second. HFT uses complex algorithms to analyze multiple markets and execute orders based on market conditions. Traders with the fastest execution speeds are generally more profitable than those with slower execution speeds. HFT is also characterized by high turnover rates and order-to-trade ratios.

• HFT is complex algorithmic trading in which large numbers of orders are executed within seconds.

• It adds liquidity to the markets and eliminates small bid-ask spreads.

• HFT is criticized for allowing large companies to gain an upper hand in trading.

• Another complaint is that the liquidity produced by this type of trading is momentary—it disappears within seconds, making it impossible for traders to take advantage of it.