Markets and technology built HFT (high frequency trading) 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.
What you learn from this lesson:
Markets and technology built HFT
Stock markets and technology built high frequency trading with the combination of evolving technology, money and power that favored HFT. That favorable treatment led markets to place investors at a disadvantage. As a result, favored HFT players became deeply embedding across 21st century stock markets. Now that favored position affects the wealth of every investor including those who have never heard of HFT. This lesson explains the technology evolution and the role that played helping establish and embed HFT in stock markets.
Frequently Asked Questions about Markets and technology built HFT
What drove the development of high frequency trading?
Deep financial pockets and technology developed high frequency trading to win the stock market race for profits. It was built to be the first to know, trade, buy, or sell.
It was inevitable once NASDAQ introduced electronic trading in 1983, and regulators accepted computer trading in 2000, which opened markets to high frequency trading.
As a result, trading, markets, and investing transformed when High frequency trading algorithms used advances in math, science, computer processing, and communication technologies.
One result was that trade execution times dropped from seconds to nanoseconds, which is well beyond the capabilities of humans.
The combination of technology and money means it is here to stay.
How did high frequency trading get established?
Pursuing profits continues to drive the stock market evolution as it has for centuries. Now speeded by technology, it gave rise to high-frequency trading.
But paying exorbitant fees ensured they became a market fixture. They paid fees to regulators and exchange managers, giving high-frequency traders unfair advantages over all investors.
They bought privileged access to information and trading system changes without investors' knowledge. The infographic in the linked lesson illustrates the centuries of stock market technology evolution.
How did high frequency trading start?
High frequency trading began in the evolution spurred by investors seeking speed and information advantages over other traders in the four centuries of stock market development. But the current era of high frequency trading began after electronic trading became an accepted part of markets. That development began the electronic and technology race for the fastest systems of communication and trade execution. Those systems, combined with cutting-edge programming, developed into high frequency trading systems. That use of technology changed markets and investing everywhere.
When did algo or algorithm trading begin?
Algo, algorithm, or computer trading began when NASDAQ introduced electronic trading in 1983. It started quietly but quickly spread in the following years as algorithms or math formulas controlled computerized buying, selling, or holding positions.
As each market enabled it, the technology spread across stock, currency, commodity, option contracts, and cryptocurrency markets.
Already established electronic trading, markets, investments, and investing changed with the introduction of algos. As a result, automated electronic trading systems progressed ever faster in the race for the fastest communication and execution technology.
That evolution accelerated through many steps to become high-frequency trading.
What value does high frequency trading provide to investors?
High frequency traders prey on market orders, spread misinformation, increase investor cost, all without investor benefits. High frequency traders pay high stock exchange fees for advantages like colocating servers with exchange trading engines, access to premium market data, and seeing investor orders. These advantages put high frequency traders ahead of all large and small investors! As well, the costs of upgrading exchange technology to cope with high frequency trading speeds and volume, are a tax on all investors. And the feeding frenzy high frequency trader volumes even earn exchange rebates with all benefits going to high frequency traders, exchanges, and even fee collecting regulators, leaving investors with the bill!
How Technology Transformed Financial Markets
High-frequency trading (HFT) emerged with technological advancement, favorable server locations, and the first access to data from financial markets. Here's a brief overview of how it got established:
Advancement in Technology
With the advent of computers and the Internet, trading became increasingly electronic and automated, allowing for faster trade execution and more sophisticated trading strategies.
Decreasing Latency
HFT relies heavily on speed. As technology improved, the time it took to execute orders decreased significantly. That reduction in latency opened up opportunities for traders to exploit price discrepancies across different markets and exchanges.
Algorithmic Trading
Algorithmic trading, which uses computers to execute trades at high speeds, has become common. HFT is a subset of algorithmic trading that uses large volumes of orders at extremely high speeds.
Arbitrage Opportunities
HFT strategies exploit tiny price discrepancies that exist only for fractions of a second. For example, HFT firms might simultaneously buy and sell the same financial instrument across multiple markets to profit from slight price differences.
Regulatory Environment
Changes in regulations, such as the deregulation of financial markets and the introduction of electronic trading platforms, also contributed to the rise of HFT. These changes created a more competitive environment where speed and efficiency became crucial for success.
Increased Data Availability
Markets make vast amounts of real-time market data available. That data allows HFT firms to develop complex trading algorithms that analyze market conditions and execute trades rapidly.
Capital Investment
Establishing an HFT operation requires significant capital investment in technology infrastructure, data feeds, and talent. HFT firms invest heavily in developing cutting-edge technology to maintain their competitive edge.
Overall, high-frequency trading became established due to the convergence of technological innovation, changes in market structure, and the pursuit of profit opportunities in increasingly fast-paced financial markets.
Centuries of evolving technology
Over 4 centuries, stock market technology evolved to deliver HFT. The unending drive for profits that powers stock markets combined with evolving technology to build HFT. That technology powered combination now spreads a layer of investor fleecing costs across markets. Investors, funds and markets bare the cost with proceeds going to HFT. The technology evolution that powers the scheme is illustrated on the infograph. It traces the evolution of the 3 key technologies essential for building HFT.
Those technologies are:
Communication
Calculation
Coding
The infograph uses images to represent the evolution of these technologies. The endless search for an advantage drove investors to those technologies. They chased profits by doing all they could to be first to get news or market data.
Better informed investors always move to the front of the profit line. Informed investors can buy or sell before others react or know and move prices. Seeking that information advantage continually drives markets to ever faster technologies.
Communication technology evolved
The communication evolution shows European sailing ships racing overland traders to the Orient. Than carrier pigeons are the messengers bringing news of Napoleon’s defeat. Electricity, telegraph service and telephones follow as now messages approach light speed delivery!
Calculation technology evolution
Calculation evolution shows from tote board and abacus to computer and nanosecond processor. The progression of processing technology flows to join the other technologies.
Coding technology evolution
Coding evolution has from counting and formulas to deep learning and artificial intelligence. These developments also flow with the other technology streams.
Greed and speed feed the wealth race
The following timeline illustrates market events as a never ending race for wealth. Speed is money. Greed and speed, rather than fairness and stability, always drives markets. Events in the four centuries of markets show the history of seeking speed that brings us to the era of HFT.
Markets and technology built high frequency trading traced through 4 centuries - See Infographic
Three technologies evolved in tandem to build the power of HFT.
Technology progressed until markets and technology built high frequency trading
From the beginning, innovative humans and technology progress, continued changing markets and investing. Development milestones over 400 years are listed below:
First 300 Years - 1602 - 1899
20 Century - 1900 - 1999
21 Century
Now You Know:
Markets and technology built HFT
You know, stock markets and technology built high frequency trading with the combination of evolving technology, money and power that favored HFT. Because HFT got favorable treatment in markets, investors have been placed at a disadvantage. one result of favoring HFT, this stock market change has been deeply embedded across 21st century stock markets.
Now well established in markets those changes affect the wealth of every investor including those who have never heard of HFT. The explanation of how the technology evolution got HFT established and embeded in stock markets. The lesson is from the Ultimate Guide To Stock Market Investing Success by White Top Investor.
You also know the answer to the question:
When did HFT begin and how did it get extablished?
Paragraph 2 the answer reworded here omitting the course and lesson names and numbers.HFT evolved once electronics and computers infiltrated stock markets. It began in major markets when NASDAQ first introduced electronic trading in 1983. After that, in 2000, the SEC accepted computer trading opening the doors to HFT. As the technology evolution continued, execution times fell from several seconds in a rapid decline to billionths of a second. That cutting edge technology progressed to make HFT an established factor across markets.
Such an outcome was inevitable once stock markets met the evolving technology. And it was the technology evolution that changed markets. Until then, most stock market developments benefited investors. But HFT, money and power flashed past investors when markets were radically changed! Those changes are illustrated on the included infographic. That infographic traces the 4 centuries of increaseing speed and evolving technology.
In addition you know these lesson takeaways from, Markets and technology built HFT:
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.
- HFT become established because 3 related technologies evolved
Communications - Calculation - Coding all underwent significant developments - HFT technology combines the latest communication, calculation and coding
- First with information has the profit making advantage
- Communication technology evolved from carrier pigeons to near light speed
- Calculating evolved from fingers and tote boards to nanosecond processors.
- Coding grew from finger counting to Artificial Intelligence
- HFT grows, seeps and embeds into virtually all markets.
- Technology evolves to become a faceless, nameless HFT fleecing machine.
- HFT can clip investors, funds and markets.
- HFT clips money from trades across markets.
- HFT money flow spews into the pockets of the HFT wizards.
- HFT benefit wizards and insides not investors or funds.
- Understanding HFT power prepares us to deal with it.
- To keep more money in your pocket learn to deal with HFT.
- Lessons in this course teaches the knowledge and skills needed to deal with HFT.
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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
Next lesson 4: Technology powers high frequency trading
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