HFT - High-Frequency Trading

High-frequency trading is just as it sounds - a lot of deals made the fastest way possible. But is this a winning strategy? In trading, the more trades you have, the more your chances for profit decrease and there is a bigger chance for errors so you should keep the winning positions and close the unprofitable ones. Therefore , HFT is exactly how you should not be doing in order to be successful.

This kind of trading uses super computers, algorithms, robots and fast connection to servers to achieve buy and sell orders in micro or nano seconds, milliseconds are considered slow. This type of speed can only be achieved if you are physically closer to the stock market, super computers and fast internet is not enough. That is why ordinary investors and traders can not benefit from this kind of trading but major banks and brokers can. They not only can open their offices near the markets, using super computers and servers but they also pay lower fees and commission.

The strategy for this fast trading may be arbitrage, extrapolation of slow and fast orders from a broker and the price difference between them. To buy form the fast broker and sell to the slow one. Another strategy is buying shares during high and low volatility and cause liquidity shortages so the price can rise quickly or the other way around. No matter what the strategy, trade speed and their implementation is essential. This can be achieved by a small group of market participants. For most traders this is not possible.

There are companies that offer HFT using new technologies that advertise the speed which trades are executed. This is good option for a retail trader.

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