High-frequency trading (HFT) is the trade of securities (such as stocks) in a matter of microseconds. Supercomputers use complex mathematical algorithms to scan the marketplace and execute millions of orders instantaneously. The algorithms decide options such as timing and price and will frequently execute an entire order without requiring any human interaction.
High-frequency traders then collect the individually tiny gains (perhaps a tenth of a penny/cent on each share), which, when combined, amount to significant sums.
HFT gained popularity in 1998, after the Securities Exchange Commission authorised electronic exchanges. The initial idea behind HFT was to open the marketplace up to anyone with a computer, but as HFT has grown individual investors have been unable to compete with the powerful computer formulas utilised by the traders…
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