High Frequency Trading (HFT) is the use of computer algorithms to rapidly trade stocks. Highly sophisticated proprietary strategies are programmed to move in and out of trades in timeframes as little as fractions of a second. It is a business dominated by a few giants as it is a sandbox that costs many millions to play in. There are many facets to High Frequency Trading. I knew roughly what High Frequency Trading was, but in this article I try to understand some of the nuance of a phenomenon that, as we will discover, is the dominant force on the exchanges today.
Forbes’ Richard Finger interviewed several people highly knowledgeable on this arcane and little understood subject. Rob Friesen, President and Chief Operating Officer at Las Vegas based Bright Trading. Dennis Dick, CFA a 15 year proprietary trader and market structure consultant for Bright Trading. Eric Hunsader is an expert in analyzing quote traffic and is founder and chief executive of data-feed provider Nanex, LLC headquartered in Winnetka, Illinois.