Importance of High Frequency Trading
Introduction
What is HFT?
While there is no definite answer to what "high frequency" might be, it has been generally accepted that they are the type of trades automated by machines using proprietary algorithms and trade at very high speeds, often executing at least a few trades in under a second. HFT strategies can be broadly categorized into 4 groups:
Liquidity Providence: Rebate Trading, Automated Market Trading.
Pricing Inefficiency Arbitrage: Scalping, Latency Arbitrage, Statistical Arbitrage
Predatory Trading: Latency Arbitrage Flash Orders, Quote Stuffing
Directional Trading: News trading, Liquidity Detection, Momentum Trading: One prominent strategy include searching for hidden large orders by "pinging" small orders. When a small order is filled very fast, it indicates that a large order is behind it. This could allow HFT to legally "front run" funds by buying a security that is anticipating a large order and push prices higher.
Context of Report http://www.thebureauinvestigates.com/2012/09/16/robot-wars-how-high-frequency-trading-changed-global-markets/ Points
The mainstay on the defence of HFT is that it provides market liquidity and thus makes market more efficient by lowering bid spread ratios. We view this argument in two parts, the past and the present. In the past, when one of the reason for the existence of HFTs were to replace human traders in market making, it did in fact bring down transaction costs for investors and there are good evidence to support this. For example,....However as HFTs become more sophisticated, it has exceeded the original goal it was designed to do. Today, only a small subgroup of HFT activity can be considered liquidity providers while a vast majority of them engage in ever more sophisticated trading activities, employing the best technologies to try and skim profits off from the market.
HFTs are known to detect and enter into counters that are liquid and volatile enough for it to trade in (Characteristics
What is HFT?
While there is no definite answer to what "high frequency" might be, it has been generally accepted that they are the type of trades automated by machines using proprietary algorithms and trade at very high speeds, often executing at least a few trades in under a second. HFT strategies can be broadly categorized into 4 groups:
Liquidity Providence: Rebate Trading, Automated Market Trading.
Pricing Inefficiency Arbitrage: Scalping, Latency Arbitrage, Statistical Arbitrage
Predatory Trading: Latency Arbitrage Flash Orders, Quote Stuffing
Directional Trading: News trading, Liquidity Detection, Momentum Trading: One prominent strategy include searching for hidden large orders by "pinging" small orders. When a small order is filled very fast, it indicates that a large order is behind it. This could allow HFT to legally "front run" funds by buying a security that is anticipating a large order and push prices higher.
Context of Report http://www.thebureauinvestigates.com/2012/09/16/robot-wars-how-high-frequency-trading-changed-global-markets/ Points
The mainstay on the defence of HFT is that it provides market liquidity and thus makes market more efficient by lowering bid spread ratios. We view this argument in two parts, the past and the present. In the past, when one of the reason for the existence of HFTs were to replace human traders in market making, it did in fact bring down transaction costs for investors and there are good evidence to support this. For example,....However as HFTs become more sophisticated, it has exceeded the original goal it was designed to do. Today, only a small subgroup of HFT activity can be considered liquidity providers while a vast majority of them engage in ever more sophisticated trading activities, employing the best technologies to try and skim profits off from the market.
HFTs are known to detect and enter into counters that are liquid and volatile enough for it to trade in (Characteristics