High-Frequency Trading (HFT) is a specialized form of algorithmic trading that uses powerful computer systems to execute a large number of orders at extremely high speeds, often measured in microseconds or milliseconds. HFT aims to take advantage of tiny price discrepancies in the market that last only for fractions of a second. This strategy is primarily used by institutional traders, proprietary trading firms, and hedge funds due to its complexity, the need for advanced infrastructure, and substantial capital requirements.
High-Frequency Trading (HFT) is like a super-fast robot that buys and sells things in the market, but it works so quickly that it can do this thousands of times in just a few seconds!
Imagine you’re playing a game where you have to pick up toys from the floor and put them in a basket. If you can pick up the toys really fast, you might win the game! In the world of trading, the robot is like the fastest player who can pick up toys (or buy and sell things) faster than anyone else.
These super-fast robots look for tiny chances to make a little bit of money. They don’t hold onto the toys for long, just long enough to make a tiny profit. Even though the profit is small, because the robot is so quick and does it so many times, it adds up to a lot of money.
But because these robots are so fast, sometimes they can make the game a little unfair for other players, and people worry that the game might get too crazy. This is why some people think we need rules to make sure the game stays fair for everyone!
So, HFT is all about being super fast at buying and selling things, trying to make a little profit each time, and doing it over and over again really quickly.