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What is High-Frequency Trading? Ultimate Guide
Author: Dmitriy Gurkovskiy
Dear Traders,
I think, most of you have heard about High-Frequency Trading or HFT. During the last ten years, it has gained popularity thanks to being high-tech and somewhat mysterious. In this article, we are going to speak about the essence of HFT, its history, its development, its principles and the part it plays on the modern financial markets, as well as about its types and strategies and its perspectives.
The appearance of HFT
In order to understand the events that led to the appearance of HFT, we should know how the trading process worked in the times of the introduction and flourishing of computer technologies in the 1970-80s. In short, the things went on like this:
Sincerely,
RoboForex team
Author: Dmitriy Gurkovskiy
Dear Traders,
I think, most of you have heard about High-Frequency Trading or HFT. During the last ten years, it has gained popularity thanks to being high-tech and somewhat mysterious. In this article, we are going to speak about the essence of HFT, its history, its development, its principles and the part it plays on the modern financial markets, as well as about its types and strategies and its perspectives.
The appearance of HFT
In order to understand the events that led to the appearance of HFT, we should know how the trading process worked in the times of the introduction and flourishing of computer technologies in the 1970-80s. In short, the things went on like this:
- Sales managers of broker companies sold stocks to their clients by phone.
- If the client agreed on the trade, he gave his order orally by phone, again. The noise in the halls and on the platforms quite often was an obstacle to executing the client's order exactly, which was a problem for both sides of the trade. The lack of exactness in trade execution and, hence, unnecessary spendings was one of the first reasons to develop the technology.
- A large broker could execute an order on their own or wait for a rather large block of orders to be executed at one price. It was also a problem because for a small client the prices were always worse than for a large one.
- Then, exchange experts processed the order. At this stage, those experts closed trades for a fee, manipulating order prices, and added up to the client's expenses.
- In the end, the broker notified the client about the execution of the order and charged their commission fee.
- The client analyzes the market situation, sends an order (a pending or a market one) via the electronic network, and almost immediately the order gets to the broker's server.
- The order executes automatically on the trading platform, which is confirmed — again, automatically.
- The broker automatically sends the confirmation of the trade to the client, charging a modest commission fee for their services.
Sincerely,
RoboForex team