Introducing high frequency trading (HFT) explained, overviews the content of this course. Lessons explain how HFT rigs markets with computers and technology. That technology delivers HFT at blazing speeds for great volumes of trades that changed all markets. Those changed markets include trading of shares, commodities, options and currencies. Each is explored in course lessons giving you details and their impact on the trades and wealth of all investors.
What you learn from the lesson: Introducing high frequency trading explained:
Introducing high frequency trading explained, defines HFT and outlines each lesson topic in the course. Each topic builds on the previous one with a detailed look at another important aspect of HFT. You learn how HFT works, how it touches all parts of the markets and the effects that has on every investor. In addition, the course presents strategies small investors can use to minimize the effects of HFT. And this overview lets you know what to expect from the course as well as from each lesson.
HFT is an important investment risk in today’s markets. You can learn of those risks from the course lessons to become informed about HFT. And, most importantly you can learn ways to minimize any impact HFT has on your wealth. That is how superior investors use their HFT awareness and stop HFT from picking their pockets. You can too.
With advanced technology, HFT buy and sell huge quantities of stock in billionths of a second! Then, a small fraction of a second later, they sell, shaving a tiny profit from each trade. That happens again and again, rapidly repeating that computer and communications enabled technology routine. As a result, the many thousands of daily trades produce huge profits.
A critical part of HFT schemes are the high fees paid to exchanges for granting privileged access to trading engines and investor orders. Those technology powered trades happen at speeds many times faster than any human can possibly trade. As a result, HFT actions impact trades of shares, commodities, options and currencies across the world.
The HFT scheme means the wealth of every investor gets touched by HFT action. Knowing how this computer and technology enabled scheme works, helps you become a better investor. And that makes you better prepared to grow your wealth in markets facing HFT challenges that put this scheme in your investing future. To learn more on related topics, use the links at the end of this lesson.
FAQ answered in this lesson:
What is high frequency trading?
High-frequency trading combines computer trading systems, the fastest processors, cutting-edge programming, and advanced communication technology with inside market deals. These systems trade vast trading volumes at blazing speeds, many times faster than any human trader.
But the inside deals with exchanges give high-frequency traders technical and operating advantages over all others. Exchange server colocation and data access, including exposure of investors' orders, changed everything for investors and markets.
That impacts trades of shares, commodities, options, and currencies with effects that touch every investor and the economy.
Why should investors know about high frequency trading?
Successful investors know high frequency trading is a major force affecting markets, investments, and investors. And investors that understand how that happens, can be more successful wealth builders. Although restricted in some markets, high frequency trading still affects every market. Wise investors that have learned how to minimize those effects, can maximize their investment success.
Does high frequency trading affect individual investors?
Yes, high frequency trading impacts everyone including individual investors. That includes anyone with a government or private pension. In fact, investment orders of pension funds and other large institutions are the main target of high frequency traders. But high frequency traders don’t hesitate to hit the market orders of retail investors as well. Call it collateral damage or roadkill, contrary claims are a high frequency trading spin. Technology and preferred access let high frequency traders front-run any investor order. So sharp investors learn how to protect their orders from high frequency traders.
How does high frequency trading work?
High-frequency traders earn profits of a fraction of a cent per trade on millions of open-market orders. They take advantage of market movements by buying, holding an order briefly, then selling, and continuously repeating this process.
This trading scheme requires advanced computer and communication technologies programmed with sophisticated algorithms.
Privileged access to trading systems and investors' open market orders is essential to maintain the system. High fees paid to exchange management ensure that this scheme runs smoothly for high-frequency traders.
As a result, the trading volume driven by these algorithm-powered systems can be as much as half of the total market volume.
What do high frequency traders do?
High frequency traders exploit Investor orders using cutting-edge computer and communication technology controlled by excellent algorithmic programming. Placed inside market systems, that technology is used to access investor orders and trade stocks, commodities, options, and currencies ahead of all investors. Using the fastest execution speeds in history, they trade huge volumes, hold for a fraction of a second, then sold at a profit. As a result, high frequency trading affects everyone, even those who have no awareness of computerized trading or even what the stock market is.
Does high frequency trading affect stock markets?
High-frequency trading significantly impacts markets trading shares, commodities, options, and currencies, just as technology affects all aspects of life and society.
Besides the blazing automated trading speeds and volumes that affect every investor, much of the market volume is now high-frequency trading.
To protect their orders from the skimming of high-frequency traders, savvy investors set the price they are willing to pay or accept.
Technology evolution changes markets
Using sophisticated advanced technology, HFT set up share, commodity, option and currency trading systems for themselves. Those HFT systems were inevitable once computers became part of trading. In fact that technology has penetrated markets so deeply it now imposes a new reality on investing. That reality centers on computerized trading systems that continue to rapidly evolve. One part of that evolution became algorithmic trading which further developed into HFT. See Lesson 2, Lesson 3 and Lesson 4 for a sequential tracing of developments that explore these topics in depth.
HFT masters markets with technology
The masters of HFT technology base it on advanced math algorithms running on powerful computers to analyze the data flow from markets for buying and selling opportunities. As a result of using ever faster technology, timing and inside positioning, technology puts HFT trades beyond any human capability.
The HFT technology masters built that capability with 4 key parts. Those key parts form the base for a new level of trading performance that grew to now dominate electronic markets. To understand how those key parts come together for HFT, see Lesson 4.
4 Keys to high frequency trading:
The lesson, introducing high frequency trading explained, presents the following as HFT foundation keys. Each course lesson discusses one topic in depth. An overview:
Speed and secrets define high frequency trading
First to understand, introducing high frequency trading explained, means knowing it developed as secret projects by small closely held and controlled groups. These groups knew their success hung on weaving HFT technology into markets. And they know the essence of HFT technology advantage was the ability to operate at unmatched trading speeds. Both Lesson 3 and Lesson 4 explore parts of these topics in depth. Those lessons also cover how the related algorithms, used in arbitrage trading plays and dark pools, get used to push the HFT advantages.
Other parts of the course, Introducing high frequency trading explained that helps investors know the significance of HFT covers the need to understand how markets and investing changed with this new technology. That new technology theme factors get covered throughout the course, Introducing high frequency trading explained, and in particular in these lessons:
Laws and regulations shield high frequency trading
HFT combines the power of hardware, software and data that freely operates under a cleverly manipulated legal shield. As a result, HFT freely profit by imposing their trading will and "cost tax" on markets and investors. Lessons 6, as well as Lesson 7 and Lesson 8 detail how those schemes came together and operate.
The tools of HFT include powerful computers, advanced communications and programming technology. Stock exchanges sold HFT inside access to trading data and order matching. That inside data feed included access to the orders from real investors. See lesson 4.
With inside access, HFT uses trading strategies to day-trade huge volumes. Some of those trades take predatory advantage of investor orders. HFT began in the U.S. but expanded to operate across most security markets. HFT are most active in equity markets, counting for a large portion of total trading. See Lesson 6.
Part of the tale of HFT are the outsider nerds and technology geeks becoming the cool kids. Many HFT firms are small organizations of smart knowledgeable people. They put together technology and relatively small funding to launch their HFT ventures. In many ways HFT technology blossomed faster in the small entrepreneurial groups. They progressed faster than the large banks or established Wall Street firms. See Lesson 7.
You need to know about high frequency trading
Successful investing includes knowing where problems can occur, what causes them and what to do about them. Basic to the introducing high frequency trading explained message must be that it touches all investors. And not in a nice way! It picks your pockets. Lessons in this course deliver information you need about HFT.
Small investor strategy stops HFT
Some of the best news in introducing high frequency trading explained it that investors have learned how to deal with it. In fact small investors have advantages over larger ones. Small investors can use stock market advantages to keep HFT out of your portfolio. Information in this course tells you how to beat the HFT tilt. By learning about HFT, you also gain a deeper understanding of markets and defensive investing. Ignoring the effects of HFT takes money from your pocket. Dealing with it, keeps your money working for you. See Lesson 13 for the details.Confusing names and terms
As part of introducing high frequency trading explained, we must get some definitions out of the way. Stock market and investing related names, terms and jargon can confuse new investors. A few definitions help. They define how, this course, Introducing high frequency trading explained, uses these terms.
First, stock exchange and stock market
Second, investing and trading
New investors get confused as those terms are often used as synonyms. At times, such use can be wrong or misleading but it continues to happen in reports and broadcasts. It does not help that some players insist on using confusing definitions of the terms.
Stock Exchange and Stock Market?
Most times, stock exchange and stock market work well as synonyms. But in some cases the terms can have different meanings that confuse new investors.
White Top Investor uses the term stock exchange to mean the place or physical location of a specific stock market. This includes the related operations where the market trading happens.
An analogy for stock exchange and stock market may be the difference between a concert hall and a concert performance. You can use the same term to say you are going to a performance or the place. At times you may want to refer to a specific event rather than a specific place. The difference can be important depending on the context, and who or what we are talking about. The meaning may change depending on a specific reference, place or event.
An operating company owns each exchanges
In the case of a stock exchange, one company, directed by a management, operates each exchange. Management gives direction and oversees employees of the exchange. They are also responsible for regulation of their business and behavior of employees. as well as how clients use the exchange to conduct their trades there.
In the case of a stock exchange, one company, directed by a management, operates each exchange. Management gives direction and oversees employees of the exchange. They are also responsible for regulation of their business and behavior of employees. as well as how clients use the exchange to conduct their trades there.
Many companies use the exchange for trading
The many companies using the stock market to buy and sell or trade are doing so for their clients and customers. Those clients or customers are people like you and me or they perhaps the various large and small fund companies.
Even when we enter order electronically on an exchange, we are customers or clients of the companies that use the exchange. We do not directly trade on the exchange ourselves. Rather, we place our order with our broker or financial advisor who gives it to the trader working for their company.
Today's electronic order placing and communication still involves the layers of players. All are part of a company with separate managements that directs and oversees their work.
HFT got up close and personal with exchanges
These business and trading relationships matter when it comes to understanding HFT. Changes that favor HFT have affected exchanges, stock markets and investing.
To understand HFT you need to see the lessons that discuss these details. Knowing how HFT changed markets and investing is then possible. HFT did not have their dominant position until the stock exchanges changed to enable and benefit HFT. Those decisions and actions of exchange management had huge impacts on investors. Understanding those decisions is at the center of understanding HFT. Course lessons cover these important relationships in detail.
Knowing means understanding the people, players and HFT forces in stock exchanges. You need to know how HFT actions affect you and your investments. Most important, learn and adopt the right trading and order strategies. Doing so makes sure HFT has little effect on your investments.
Investing or trading or both and speculating!
The second bit of confusion may come from the terms, trading or investing; two of the three basic stock market strategies. The third being speculating can add to a muddle of terms that can confuse investors.
Those first two, investing and trading, are often used as synonyms but can also have sharply different meanings. Even when well defined their meanings can overlap. Especially as media, market observers and many investors use both as synonyms across a range of situations.
White Top Investor sets a clear difference between speculation, trading and investing. Any stock can be a speculation, many stocks can trade and some stocks can be investments.
The definition of investing and trading causes the most confusion. We define speculating, investing and trading to give you the big picture and difference between each. We begin with the broadest, speculation, and finish with the most restrictive definition, investing.
Speculating defined by White Top Investor
Speculations cover everything because we can speculate on anything in markets and beyond. Speculations are bets that may possibly score a win but at risks that ranges from high to extreme and including the possibility of a total loss. Some are like a lottery ticket, you win big on extreme odds or you lose it all! Others are far less extreme but no speculation is low risk or a sure thing.
In the stock market, a speculator can bet on any listed company. However, speculations are bets made to seek a big win. A speculator can bet on any company. The bet can be on companies without positive cash flow or even revenue. It can be a new startup or technology or business ideas or a resource exploration company.
White Top Investor defines any company without a positive cash flow as speculative. While still a speculation, such stocks may also begin to attract high risk trades. That happens when the speculation grows, develops or shows more promise. Speculations can be small startups or large technology or new business bets.
A speculation can also be a popular and revolutionary company like Tesla! That company continues to reshape the vehicle world, but remains a speculative stock. Most speculations are short term plays with few going beyond a year. However, Tesla may take some time yet to become recognized as a trade or viable operating business worthy of an investment.
Trading defined by White Top Investor
Shares bought to trade become winners by going up in price. Trades are any holdings bought and sold for a profit at higher prices. While holding the stock, value increases traders count any rise in price as a gain. But, profits are only realized when the shares get sold. Winners get sold at prices higher than their cost. Losers happen when prices fall.
Trades can also happen with dividend paying stocks. However, the intention of traders is to ride stock prices higher before selling at a profit. Traders count any dividends as a welcome bonus but not the purpose of the trade. Most good trades are growing companies with positive cash flow. They may or may not have a bottom line and may or may not have an established dividend record. The key to trading profits are share prices that move up. Most traders hold their positions for weeks or months, some few hold for years.
Investing defined by White Top Investor
Investors invest in productive assets. If the asset does not produce, it can not be an investment. Investors buy shares in companies that pay a dividend or other income stream. Owners of investments must receive a return while they continue to own the assets.
Most investors seek large long established companies or funds that pay dividends. Investors want their investment to hold or rise in value. However, the main focus of the investor remains focused on a rising income stream. Favored investments are in large companies with long well established dividend records. Investments of that quality are long term holds lasting for many years to forever.
Lesson recap as part of introducing high frequency trading explained
Following are overviews or recaps of each lesson in the course. This gives you a good deeper look at the course content. With that you can decide if you want to continue or to pick through the list to explore the topics in any order.
1st Lesson
Introducing high frequency trading
An overview of topics covered in the High Frequency Trading Explained course.
The course begins with an overview, Introducing HFT explained, provides a synopsis of the content of this course. Lessons explain how HFT rigs markets with computers and technology. That technology delivers HFT at blazing speeds for great volumes of trades that changed all markets. Those changed markets include trading of shares, commodities, options and currencies. Each is explored in course lessons giving you details and their impact on the trades and wealth of all investors.
2nd Lesson + Includes Infographic
Racing for profits makes high frequency trading
Horses racing are like HFT racing for profits.
Seeing the economic and financial past as a race for profit sets the stage for HFT development. That race for profits drove high frequency trading with the help of many powerful allies. Those allies made changes that installed HFT as an integrated feature of markets. All in on the game, profited, by making HFT a part of markets. But investors were on the outside, baring costs when HFT was set loose on markets. The included stock market development timeline traces the race for profits to HFT.
3rd Lesson + Includes Infographic
Markets and technology built high frequency trading
HFT investing strategy does what!?
The evolution of technology was central to HFT development. In fact, markets and technology built HFT into a stock market force when inside allies, dollars and power changed markets. Potent changes favored HFT over investors. Until then, most changes during the evolution of markets, had supported investors. But after HFT arrived, technology, dollars and power changed market priorities. The new priorities and technology, tilted markets against investors. To trace the technology evolution, see the infograph included in this lesson. It shows 4 centuries of technology evolution that made HFT possible.
4th Lesson
Technology powers high frequency trading
Advanced communications, computers and programming combine to make our future.
The combination of powerful technologies built the power of HFT. That technology power of HFT comes with the combination of advanced communications, computers and programming. It is that powerful technology combination that continues to power this market and investing changing evolution. Those changes touch our lives and finances as time rushes us into the future. That future of ever advancing technology may change our investing opportunities.
5 th Lesson
High frequency trading secret exposed!
Steve Kroft detailed how high frequency trading happened.
Media exposure stirred investor awareness and force HFT to change again. Once exposed to public view, investors learned of HFT market rigging schemes that tilted stock markets. As a result, like a secret private tax, HFT imposed costs across markets to clip and hit investors. Those cost shocks hit the largest professionally managed funds the most. In fact, those large funds were the prime HFT targets although individual investors also suffered cost hits.
6th Lesson
Laws and ethics beat investors
A blurry image of blind Lady Justice holding the scales of evidence represents indifference to the harm of bad law.
To the amazement of many investors, legal and cultural support for HFT enabled the market rigging. That happened with HFT, using laws and ethics, to rig markets and beat investors. Such legal rigging happened when the allies of HFT were active in tilting markets against investors. As a result, superior investors must know of the HFT changes and how they are justified. Most importantly, investors must learn how to counter markets that favor HFT.
7th Lesson
Market management burns investors
Investors grilled by market management.
Stock market management burns investors with market tilting changes favoring HFT. Included are structural changes made by exchange management that sealed investor fates by serving their orders to HFT. It became a tipping point when the NYSE changed in response to the 2008 financial crisis. As a result, markets and investing changed. Once those changes favoring HFT happened on the NYSE, virtually all major markets did the same.
8th Lesson
High frequency trader 3-Way ambush
3 soldiers represent the 3 way fix setting up investors for HFT
Investors were picked off in a trap set by HFT. That HFT 3-Way ambush got sprung as a business fix that trapped all investors. That fix happened when exchange management traded fees and profits for changed stock exchange priorities and operations. Those major changes became widespread once NYSE paid volume fees. Accepting those fee contracts opened the way for the HFT 3-way ambush on investors. Following that, similar changes cascaded across markets to sell out all investors.
9th Lesson
Fair and foul high frequency trading
Investors don't get all narrowed price spreads
HFT are unmatched arbitrage players across markets. Fair and foul high frequency trading (HFT) hides in arbitrage plays. Foul plays take advantage of investors. But, fair play also happens with this common stock market strategy used by HFT. Using unmatchable HFT speeds, arbitrage trades can suck money from investor pockets. Investors that know and understand HFT, can keep any impact small. As always, informed investors make better decisions and trades.
Change imposed by HFT affects all investor portfolios.
HFT uses many strategies to keep ahead of markets, regulators and investors. HFT strategies, risks and regulations show their effects across markets. Those markets, tilted by regulators and exchange managements, favor HFT over investors. It continues with constant market change that supports the tilt against investors. All the while HFT uses technology and strategy unavailable to any investor. Only aware investors can protect themselves from HFT.
Investors need defense against HFT
Fabulous fictions of HFT are the many stories told by this market changing scheme. The fiction includes many misinformation myths of HFT to confuse and mislead investors. Driven to protect advantages over investors, bold hype shields HFT pick pockets feeding on investor orders. Their aggressive propaganda campaign protects the market rigging advantages built for HFT. In response, superior investors must become informed, aware and learn countermeasures. Once aware of the pervasive HFT misinformation efforts, investors can move to protect themselves from HFT predation.
Speed bumps and taxes join market forces as parts of the response to HFT.
Reactions to HFT range widely from nothing to building a new market. Responses to HFT come from markets, technology and laws to do nothing indifference. That investor abuse by HFT attracted a range of responses from a new exchange to doing nothing. Proposals to counter HFT included technology speed bumps, taxes and regulations. Although regulators continue to talk, in most cases proposals are only words. That means no market, trading or investing fixes will address markets rigged for HFT. Time will tell if lawmakers and regulators change to address HFT. Meanwhile, HFT advantages over investors continue. So for now, addressing HFT abuse is up to individual investors.
13th Lesson
Investors deal with high frequency trading
Investors can learn how to stop giving HFT their money.
But resilient investors do deal with HFT. How investors deal with HFT can significantly change their bottom line results. To do that, they set the right trading details to prevent HFT predators from picking off orders. This lesson teaches how superior investors protect their investments and trades from HFT. Using their small investor advantages with set price orders, they successfully deal in HFT infected markets. Those advantages keep superior investors ahead in markets rigged for HFT schemes.
Next lesson: Racing for profits drives high frequency trading
Notes, abbreviations and definitions from introducing high frequency trading explained
- Most developments and examples used in this course track U.S. market changes. Stock exchanges in America set the tone for how all markets accepted and handled the challenge presented by HFT. The responses of the majority of markets around the world are similar
Abbreviations and definitions used in the course:
- AI - Artificial Intelligence
- ATS - Alternative Trading System
- CFTC - Commodities Futures Trading Commission
- DMM Designated Market Makers
- HFT - High Frequency Trading and High Frequency Trader
- ICE - Intercontinental Exchange
- mu - microsecond (1 millionth of a second)
- ms - millisecond (1 thousandth of a second)
- NABBO - U.S. National Best Bid and Offer
- NASDAQ - National Association of Securities Dealers Automated
Quotations now renamed Nasdaq, Inc. - NMS - U.S. Regulation National Market System
- ns - nanosecond (1 billionth of a second)
- NYSE - New York Stock Exchange
- SEC - U.S. Securities and Exchange Commission
- SIP - Security Information Processor
- SLP - Supplemental Liquidity Provider
The introduction to high frequency trading explained gives you a course overview.
Now you know: Introducing high frequency trading explained
Introducing high frequency trading explained, defined HFT and outlined the topic of each lesson. In sequence, each topic builds on the previous one. Each provides a detailed look at another important aspect of HFT. Coverage included how HFT works, how it touches all parts of markets and the effects that has on every investor. In addition, the course presents strategies small investors can use to minimize the effects of HFT. The overview gives readers what they can expect from the course and each lesson.
Course material covers all that is important to understand HFT as a risk in today’s markets. The course also lets you learn of those risks from the lessons that help you become informed about HFT. Becoming an investor knowing about HFT also lets you learn ways to minimize any impact on your wealth. That is how superior investors use their HFT awareness. Those aware investors can stop HFT from picking their pockets. All investors can also learn these lessons. The lesson, Introducing high frequency trading explained, gives superior investor knowledge. It is a lesson from the Ultimate Guide to Stock Market Investing Success.
You know the answer to the question, how does high frequency trading work?
With advanced technology, HFT buy and sell huge quantities of stock in billionths of a second! Then, a small fraction of a second later, they sell, shaving a tiny profit from each trade. Again and again that computer and communications enabled technology routine rapidly repeats. As such, the many thousands of daily trades produce huge profits.
Those trades happen at speeds many times faster than any human can possibly trade. As a result, HFT actions impact trades of shares, commodities, options and currencies across the world. And that means the wealth of every investor gets touched by HFT action. Knowing how this computer and technology enabled scheme works, helps you become a better investor. And that makes you better prepared to grow your wealth in markets facing HFT challenges that put this scheme in your investing future.
In addition, you have these takeaways from:
Introducing high frequency trading explained:
The lesson, Introducing high frequency trading explained, overviews the content of this course. Lessons explain how HFT rigs markets with computers and technology. That technology delivers HFT at blazing speeds for great volumes of trades that changed all markets. Those changed markets include trading of shares, commodities, options and currencies. Each is explored in course lessons giving you details and their impact on the trades and wealth of all investors.
The course covers events relating to HFT and how to deal with them. The course teaches:
Course topics include:
- The technology evolution changed markets
- HFT grew to dominate and change markets
- Keys to HFT power
- Hardware - communication and computer power
- Software - computer science and programming
- Data access and location advantages
- Laws - legal and regulatory advantages
- Hardware - communication and computer power
- Investors need to know about HFT
- Definitions clarify name and term confusion
- Stock Exchange and Stock Market definitions
- Investing, trading and speculating each distinctly suffer different impacts
- Stock Exchange and Stock Market definitions
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High frequency trading explained, lesson links:
Introducing high frequency trading explained Lesson 1
Racing for profits drives high frequency trading Lesson 2
Markets and technology built HFT Lesson 3
Technology powers high frequency trading Lesson 4
High frequency trading secrets exposed! Lesson 5
Laws and ethics beat investors Lesson 6
Market management burns investors Lesson 7
High frequency trader 3-Way ambush Lesson 8
Fair and foul high frequency trading Lesson 9
High frequency trading strategies, risks and regulations Lesson 10
Misinformation myths of high frequency trading Lesson 11
Markets technology and laws respond to high frequency trading Lesson 12
Investors deal with high frequency trading Lesson 13
FAQ about high frequency trading
Lesson code: 510.01.
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