High Frequency Trading: What’s True, What’s False and What’s Next
*This article is for general information purposes only and does not constitute Eze Castle Integration trading or technology advice as to any particular set of facts.
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It has dominated the headlines and been targeted by lawmakers looking to repair and regulate a financial system that has taken the brunt of blame for our current economic landscape. What exactly is high frequency trading? Why has it become a controversial practice? How will our financial system change if new restrictions are put into place? In this article, we’ll examine what high frequency trading is, how it works and why it’s in all the headlines.
High frequency trading can be defined as the use of quantitative-driven strategies to execute strategies with a holding time of less than one day. In other words, firms are trading in a rapid manner, while cutting holding fees and subsequently increasing profit margins. High frequency trading is algorithm-based and originated in the equities markets, but is currently extending its reach to other markets, including futures and commodities.
High frequency trading occurs when traders are able to quickly identify and execute pre-developed strategies across markets and move from position to position in just milliseconds. Traders are able to develop complex