What is high frequency trading?


High Frequency Trading is a trading technique that consists of performing transactions at very high speed, using computer software that is mainly based on mathematical algorithms. On the European continent as well as in America, this type of trading is frequently used. Focus on this increasingly popular form of trading.

High Frequency Trading in a few words

High frequency trading or HFT aims to take advantage of price differences within a very short period of time. In practice, this involves using an IT method to implement an investment strategy that could not be done manually. In other words, the THF makes it possible to automatically identify, using computers, the right investment opportunities based on pre-established algorithms and, as a result, execute several thousand stock market orders at a high frequency in just one millionth of a second. Those who adopt this approach thus enjoy a privilege that allows them to earn a little more.

server for high frequency trading

However, the regular repetition of operations allows considerable profits to be made. Finally, high-frequency trading is a technique that is essentially based on good time management, as it offers the possibility of studying a lot of information and using it to sell or buy a short time in advance. Today, high-frequency trading plays a major role in financial markets. In Europe, it is used for 35% of daily transactions, while in the United States it accounts for nearly 70% of the volumes traded on the equity market.

Some disadvantages not to be overlooked

Some financial experts have closely studied the phenomenon of high frequency trading and have discovered some negative effects on the proper functioning of markets, namely its tendency to unbalance them. This disadvantage can materialize in the form of destabilizing events such as the “flash crash” or the “flash crash”. This type of situation may follow the application of the THF and is manifested by a sudden drop in stock market prices in a short period of time.