Difference between revisions of "High Frequency Trading"
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== Features == | == Features == | ||
| + | === Fast Speed === | ||
| + | One of the major benefits of HTF is the speed of trading. [1]A number of theoretical models use HFTs to motivate their informational structure. Martinez and Rosu (2013) and Foucault, Hombert, and Rosu (2013) model HFTs receiving information slightly ahead of the rest of the market. HFTs predict price changes over horizons of less than 3 to 4 seconds. | ||
| + | |||
=== Volume Trading === | === Volume Trading === | ||
The high-frequency platform allows traders to profit off of a sheer number of trades that would be impractical for a manual trader. Through algorithms, a high-frequency trader can conduct enough trades in enough volume in a short time to react to the market. | The high-frequency platform allows traders to profit off of a sheer number of trades that would be impractical for a manual trader. Through algorithms, a high-frequency trader can conduct enough trades in enough volume in a short time to react to the market. | ||
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https://www.investopedia.com/ask/answers/09/high-frequency-trading.asp | https://www.investopedia.com/ask/answers/09/high-frequency-trading.asp | ||
2.https://www.investopedia.com/terms/h/high-frequency-trading.asp | 2.https://www.investopedia.com/terms/h/high-frequency-trading.asp | ||
| + | 1. https://www.econstor.eu/bitstream/10419/154035/1/ecbwp1602.pdf | ||
Revision as of 18:07, 13 March 2020
Financial markets have undergone a dramatic change. Traders no longer sit in trading floors buying and selling stocks with hand signals. Transactions are executed electronically by computer algorithms. The application of algorithms on financial markets promotes a new type of electronic market maker called high-frequency traders.
High-frequency trading (HFT), is a method of trading that uses powerful computer programs to transact a large number of orders at extremely high speeds. It uses complex algorithms to analyze multiple markets and execute orders based on market conditions. These platforms allow traders to make a transaction in a matter of seconds. Typically, the traders with the fastest execution speeds are more profitable than traders with slower execution speeds due to market nature.
Features
Fast Speed
One of the major benefits of HTF is the speed of trading. [1]A number of theoretical models use HFTs to motivate their informational structure. Martinez and Rosu (2013) and Foucault, Hombert, and Rosu (2013) model HFTs receiving information slightly ahead of the rest of the market. HFTs predict price changes over horizons of less than 3 to 4 seconds.
Volume Trading
The high-frequency platform allows traders to profit off of a sheer number of trades that would be impractical for a manual trader. Through algorithms, a high-frequency trader can conduct enough trades in enough volume in a short time to react to the market.
Liquidity
The major benefit of HFT is it has improved market liquidity and removed bid-ask spreads that previously would have been too small. [2] This was tested by adding fees on HFT, and as a result, bid-ask spreads increased. One study assessed how Canadian bid-ask spreads changed when the government introduced fees on HFT, and it was found that bid-ask spreads increased by 9%.
Ethical Concerns
Reference
https://www.investopedia.com/ask/answers/09/high-frequency-trading.asp 2.https://www.investopedia.com/terms/h/high-frequency-trading.asp 1. https://www.econstor.eu/bitstream/10419/154035/1/ecbwp1602.pdf
