High-frequency trading (HFT) refers to a type of algorithmic trading characterized by the rapid execution of orders, often within milliseconds. This strategy relies on advanced technology to capitalize on small price discrepancies over a high volume of trades. HFT typically involves quantitative models and algorithms that analyze market data and trends to determine optimal trading opportunities.
In many markets, HFT is used by institutional investors and proprietary trading firms to enhance liquidity and efficiency. These participants may execute thousands of orders daily, leveraging speed and statistical arbitrage methods. While HFT can improve market dynamics, it also brings concerns regarding market volatility and the potential for 'flash crashes.'