Vipul Devkar wrote:
what does it mean?
how it works ?
who trades it ?
Anyone who have basic understanding of High Frequency Trading(HFT) is requested to share his opinion and explain how its done or share system that works in real market
High frequency trading is an automated trading platform used by large investment banks, hedge funds and institutional investors which utilizes powerful computers to transact a large number of orders at extremely high speeds. These high frequency trading platforms allow traders to execute millions of orders and scan multiple markets and exchanges in a matter of seconds, thus giving the institutions that use the platforms a huge advantage in the open market.
The systems use complex algorithms to analyze the markets and are able to spot emerging trends in a fraction of a second. By being able to recognize shifts in the marketplace, the trading systems send hundreds of baskets of stocks out into the marketplace at bid-ask spreads that are advantageous to the traders. By essentially anticipating and beating the trends to the market place, institutions that implement high frequency trading can gain favorable returns on trades they make by essence of their bid-ask spread, resulting in significant profits.
High frequency trading became common place in the markets following the introduction of incentives offered by exchanges for institutions to add liquidity to the markets. By offering small incentives to these market makers, exchanges gain added liquidity, and the institutions which provide the liquidity also see increased profits on every trade they make, on top of their favorable spreads. Although the spreads and incentives amount to a fraction of 1 cent per transaction, multiplying that by a large number of trades per day amounts to sizable profits for high frequency traders.