What you need to know about HFT

We have already talked about the 4 order types in HFT or High-Frequency Trading in this visual article. Today, we are going to give you some basic insights into HFT.

What is HFT? What are the factors that make it so intriguing and lucrative?

The definition of HFT on Wikipedia is:

Highfrequency 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.

So, let us see what are the interesting facts about HFT.

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4 HFT Strategies you need to know

What is HFT?

High-Frequency Trading (HFT) is a program trading platform that uses powerful computers to transact a large number of orders at very fast speeds it uses complex algorithms to analyze multiple markets and execute orders based on market conditions

Lightning Speed

Algo-traders make trades in microseconds to milliseconds. Some say it’s as fast as half-a-millionth of a second – that’s an incredible speed you are looking at!

Market Making

HFT firms characterize their business as “Market making” – a set of high-frequency trading strategies that involve placing a limit order to sell or offer) or a buy limit order (or bid) in order to earn the bid-ask spread. By doing so, market makers provide counterpart to incoming market orders

Signals

Precision of signals (buy/sell signals) is paramount, since gains may quickly turn to losses if signals are misaligned, a signal must be precise enough to trigger trades in a fraction of a second

Tick By Tick Data

Market data changes trigger HFT systems to produce new orders in a few hundred nanoseconds. The collected data can consist of billions of data rows!

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Colocation

Locating computers owned by HFT firms and proprietary traders in the same premises where an exchange’s computer servers are housed. This enables HFT firms with co-located servers to get faster market access

Asset Classes

HFT Proprietary Firms trade in Stocks, Futures, Bonds, Options, FX etc. High-FrequencyTrading can be done from any corner of the world at any time. Thus making it a preferred option for FX trading

High End Systems

Just staying in the high-frequency game requires ongoing maintenance and upgrades to keep up with the demands. Banks and other financial institutions spend a fortune on developing superfast computer hardware and execution engines in the world.

Skilled Pros

HFT professionals are increasingly in demand and reap top-dollar compensation. Solid footing in both theory and practice of finance and computer science are the normal prerequisites for successful implementation of high-frequency Environments.

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Next Step

If you’re a retail trader or a tech professional looking to start your own automated trading desk, start high-frequency trading training today! Begin with basic concepts like automated trading architecture, market microstructure, strategy backtesting system and order management system. You can also enroll in the Executive Programme in Algorithmic Trading (EPAT™), one of the most extensive algo trading courses available in the industry.