High-Frequency Trading System

A High-Frequency Trading System is an algorithmic training system that submits stock market trades significantly faster than human traders.

• See: Algorithmic Trading, 2010_Flash Crash, Sharpe Ratio, Buy And Hold, 2010_Flash Crash, Index Fund, Market Liquidity.

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References

2015

• (Wikipedia, 2015) ⇒ http://en.wikipedia.org/wiki/high-frequency_trading Retrieved:2015-1-27.
  • High-frequency trading (HFT) is a primary form of algorithmic trading in finance. Specifically, it is the use of sophisticated technological tools and computer algorithms to rapidly trade securities. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second. It is estimated that as of 2009, HFT accounted for 60-73% of all US equity trading volume, with that number falling to approximately 50% in 2012. High-frequency traders move in and out of short-term positions at high volumes aiming to capture sometimes a fraction of a cent in profit on every trade. HFT firms do not consume significant amounts of capital, accumulate positions or hold their portfolios overnight. As a result, HFT has a potential Sharpe ratio (a measure of risk and reward) tens of times higher than traditional buy-and-hold strategies. High-frequency traders typically compete against other HFTs, rather than long-term investors. HFT firms make up the low margins with incredible high volumes of tradings, frequently numbering in the millions. A substantial body of research argues that HFT and electronic trading pose new types of challenges to the financial system. Algorithmic traders and HFTs were both found to have rapidly withdrawn liquidity in the May 6, 2010_Flash Crash. Several European countries have proposed curtailing or banning HFT due to concerns about volatility. Other complaints against HFT include the argument that some HFT firms scrape profits from investors when index funds rebalance their portfolios. Other financial analysts point to evidence of benefits that HFT has brought to the modern markets. Researchers have stated that HFT and automated markets improve market liquidity, reduce trading costs, and make stock prices more efficient.

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