What Is High-Frequency Trading (HFT)?
HFT firms use specialized hardware, co-location at exchanges, and proprietary algorithms to execute strategies at microsecond timescales. The dominant HFT strategies are market making (capturing the spread), statistical arbitrage (exploiting tiny mispricings between related instruments), and order anticipation (detecting large orders and trading ahead of them).
HFT now accounts for 50%+ of US equity volume by some estimates. Major HFT firms (Citadel Securities, Jane Street, Virtu, Hudson River Trading) generate billions in annual revenue largely invisible to retail traders. Their edge comes from speed, infrastructure investment, and ML models trained on tick-level data.
For retail traders, HFT's main impact is on order execution: market orders get filled near-instantly at the NBBO, but the spreads have narrowed at the cost of greater complexity beneath the surface. The 2010 Flash Crash and several similar incidents have raised regulatory questions about HFT's market-stability role.
Related terms
- Market Maker — Firm that quotes both buy and sell prices, providing liquidity for a profit on the spread.
- Order Book — Real-time list of all open buy and sell orders for an asset, by price.
- NBBO (National Best Bid and Offer) — Best available bid and ask prices across all US exchanges, consolidated in real time.
- Level 2 (L2) Data — Real-time order book showing all visible bids and asks beyond the best price.