High Frequency Trading

High Frequency Trading

Playing the game of a few milliseconds!

I really felt that a post on this ultra-fast trading that relies on high tech machinery was a must on this Stock Fest blog. High Frequency Trading (HFT) is all about speed. Even a few milliseconds of time being created will lead to millions of dollars worth of profitable trades.

HFT is the quest to make faster and faster trades. Computers make tens of thousands of trades even when the price of a security goes from $65 to $65.01 to generate fairly good profits.

HFT firms across the globe are happy to pay the high fees necessary to make financial trade data transmission faster by a few milliseconds. High frequency traders now trade in the crucial financial markets such as London and Tokyo in addition to New York.

Highly complex algorithms and advanced mainframe computers will quickly parse through the financial data made available and pinpoint the prospects for HFT.

The CEO of Huawei Marine Networks, Nigel Bayliff tells us about the value of a couple of milliseconds: “A couple of milliseconds can roll out to a $20-million difference in [a trader’s] account at the end of the month.”

HFT firms are more than willing to shell out millions for even more blistering fast transmission speeds.  To put these astronomic costs into perspective, let's look at a recent project: A transatlantic cable being laid cost a staggering $400 million. The plus point of this project: HFTs save five milliseconds! But these milliseconds make all the difference.