How markets work
High-frequency trading
Also called HFT
Automated trading that competes on speed, holding positions for fractions of a second.
How it works
HFT firms profit from tiny discrepancies — between venues, between related securities, or between an order arriving and the book updating. Individual profits are minuscule and repeated enormously often.
The debate about it is genuinely two-sided: HFT has narrowed spreads and increased displayed liquidity, and it has also been implicated in episodes where that liquidity vanished in seconds.
Related terms
- Algorithmic tradingUsing computer programs to decide the timing, price and size of orders automatically.
- Market makerA firm that continuously quotes both a buy and a sell price, so there is always someone to trade with.
- LiquidityHow quickly you can turn something into cash at a fair price, without moving the price against yourself.
- Flash crashA very sudden, very deep price fall that reverses almost as quickly.
More in How markets work
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