Chapter 15: High-frequency Trading

High-frequency trading (HFT) is a form of algorithmic trading. There is no clear-cut definition of HFT, though there are some characteristics of HFT activity. For one thing, all trading is done by a computer. The trader designs and implements an HFT algorithm which runs on very fast computers. The computers receive trading-related information from available sources. Such sources include available public information (such as stock quotes and other order book information) from one or more stock markets and also available news feeds. Based on such information, the HFT algorithm decides on the trades. This decision includes the assets to be traded and the price and the volume of the trade. Once such decisions are made, the relevant orders are sent to the appropriate stock markets. Apart from the initial design of the algorithm and subsequent tuning of its top-level parameters, there is no human element involved in the entire trading activity.