What Is High-Frequency Trading (HFT)?
High-frequency trading (HFT) initially started in 1983 after Nasdaq introduced a purely electronic form of trading. Since then, with the advancements in computational power and speed, HFT has evolved to become a trading strategy commonly operated by hedge funds, institutional investment firms, and algorithmic traders.
HFT trading is a technique that uses a variety of algorithms to analyse and profit from minuscule price variations within fractions of a second. The idea is to capture micro inefficiencies in the market and make small profits that aggregate into a substantial sum over time.
This method was applied to stocks, forex, and other forms of traditional markets. However, HFT-focused trading firms have now applied the same kind of technology to profit from the cryptocurrency trading market. According to Financial Times, this list includes DRW, Jump Trading, and DV Trading.
Amongst the many HFT strategies are co-location, market-making, pinging, arbitrage, and news-based trading. Each has its advantages and limitations, and not all HFT strategies are available to retail traders.