high frequency trading

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High frequency trading
According to Wikipedia, high frequency trading is a type of algorithmic trading which uses sophisticated technological tools and computer algorithms to rapidly trade securities.

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High frequency trading is a quantitative trading. It produces very small profits in each trade but huge profits when it has a large volume. The ability to process a large volume of information by computer contributes to HFT. Computerized quantitative models make all the decisions in a rapid speed which cannot be done by humans. It makes HFT has a high rely on strategies which are closely guarded by companies. There are several standard arbitrages used in HFT. The most basic strategy is market making. It is used by some
HFT firms as a primary strategy. Other strategies including ticker tape trading, event arbitrage, statistical arbitrage, etc.

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Because the trade can be made in very short periods, HFT has a great contribution to market liquidity. It sounds good to the financial market, however, high profits always come with high risks. People believe that high frequency traders accelerated the mutual fund’s selling and contributed to the sharp decline of price when 2010 Flash Crash happened. Some joint reports noted that "Automatic computerized traders on the stock market shut down as they detected the sharp rise in buying and selling." When these high frequency traders exited the market, they caused a sudden lack of market liquidity which led to other companies to trade down.

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High frequency trading also has other problems. Many discussions about HFT focus on trading frequency but not on its value. More firms are trying to profit from cross-market arbitrage techniques that do not add significant value through increased liquidity when measured globally. When traders go into a wrong direction about financial trading, it becomes meaningless to have these trades.

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In another financial news website, they invited a commentator Garrett

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