Trading on speed,
not price.
High-frequency trading allows traders to profit from minimal price movements and is accomplished using algorithms, making the decision to buy or sell based on factors like recent trends. These trends include factors like price, volume, volatility, and gaps between the bid and ask prices. High-frequency traders compete based on the speed with each other, less on price. Profits are driven by exploiting differences in bid-ask spreads.
Leveraging Algorithms
High-frequency trading relies on computers to identify trading opportunities. This trading strategy has been defined as algorithmic trading characterized by short holding periods and high turnover rates, where exchanges use computers to execute trades at incredibly high speeds. Citadel, often making tens of thousands of transactions per second.
High-frequency traders are the ones who typically initiate these types of computerized orders and often work with investment banks because these are the brokers who have direct access to market data to execute trades faster than anyone else.
High-frequency trading is very controversial in that it doesn't involve human analysis or interpretation. It just gives computers the ability to buy and sell rapidly with the result of huge profits generated. Advanced algorithms and supercomputers accomplish this task at speed humans can not.
Traders usually profit by earning a tiny return on each trade that adds up to massive profits over time. High-frequency trading has grown exponentially over the last few years, giving traders the ability to buy and sell securities at very high speeds.