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<!DOCTYPE html>
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<h3 class="ourproject_title title_padding" style="color:black">
<b>High-Frequency Trading (HFT)</b>
</h3>
<p style="color: black; font-size: 20px">
High-frequency trading describes trading that require high computing and communication speeds.<br>
HFT is characterized by high communication and computing speed, large number of trades, low profit per trade and expensive software infrastructure.<br><br>
High-frequency traders use communication speed to profit and outwit other traders.<br><br>
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<h5 class="ourproject_title title_padding" style="color:black;">
<b>High Frequency Strategy Types</b>
</h5>
<p>
<b style="color:#A569BD;">Arbitrage</b><br> Arbitrage trades happen when an asset is priced differently on 2 exchanges and a trader buys the cheaper one while shorting the pricier one.
</p><br>
<p>
<b style="color:#A569BD;">Reaction to news</b><br> When a major news is released, the trader who reacts the fastest wins. In this case, the high-frequency trader needs to analyse the news and fire the trade before everyone else
</p><br>
<p>
<b style="color:#A569BD;">Reaction to news</b><br> When a major news is released, the trader who reacts the fastest wins. In this case, the high-frequency trader needs to analyse the news and fire the trade before everyone else
</p><br>
<p>
<b style="color:#A569BD;">Latency Arbitrage</b><br>When a traditional (slower) hedge fund buys a large amount of Stock A, a HFT hedge fund will detect that.<br><br>
The HFT hedge fund will then buy all the Stock A on the other exchanges and sell it back to the slower hedge fund for a small profit.<br><br>
The HFT hedge fund might do this millions of times over a day.
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<b style="color:#A569BD;">Statistical Arbitrage</b><br> A large number of similar stocks might move in a similar manner. When any of the stocks diverge, the high-frequency trader will buy the cheaper one and/or short the pricier one.
</p><br>
<p>
<b style="color:#A569BD;">Index Arbitrage</b><br> An index or exchange-traded fund is designed to track the returns of an index such as the S&P500.<br>
Other strategies<br>
HFT is a secretive field. Once a strategy is revealed and the other funds join in, the profit opportunity disappears fast.<br><br>
Thus, many new innovative strategies are created every day and are not known to the general public.
</p><br>
<p>
<b style="color:#A569BD;">Investment in infrastructure</b><br>
HFT is usually a winner-take-all industry. If you are faster than your competition (even by a slight amount), you get all the profits.<br><br>
Since relative speed is more important than absolute speed, HFT funds constantly try to be faster than their rivals.<br><br>
HFT funds spend hundreds of millions on hardware and software infrastructure to reduce their computing and communication speed by the milliseconds.<br><br>
Investments in infrastructure include building a straight tunnel to lay communication lines and putting their servers right beside the financial exchange’s servers. <br><br>
<b style="color: black; font-size: 19px">Here's a basic structure of the upcoming parts: </b>
<ol style="color: black; font-size: 19px">
<li>What is Pair-Trading and how it works.</li><br>
<li>How to choose pairs: <br><br>
<ol>
<li>Quantitative analysis of stocks to find right pairs to hedge.</li><br>
<li>This consists of statistical methods employed, the idea behind them, and program snippets for a way to employ these methods.</li>
</ol>
</li>
</ol>
</p>
<p align="center">
<a class="button" href="pairshow.html" style="font-size: 16px"> Pairs-Trading & How It Works</a>
<a class="button" href="goodpairs.html" style="font-size: 16px"> Skip to Finding Good Pairs </a><br>
<a class="button" href="tsys.html"> << Back to Trading Systems </a>
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