Question

High Frequency Trading – Challenges and Opportunities

Answer 1

High Frequency Trading (HFT) Challenges:

1. Algorithms can be manipulated to produce fake orders and cancel them out. Such spoofing will distort demand and supply dynamics in markets and High frequency traders will unfairly exploit it.

2. HFT was the reason for impulsive and short lived drop in market which later became known as "Flash Crash".

3. It is costly to operate and required costly infrastructure initially to invest in.

HFT Opportunities:

1. It has good profit potential given that it uses complex algorithms and lot of data to make trading decision.

2. HFT offers ultra speedy executions of trade, thereby increasing liquidity in markets and will be able to take advantage of very short term opportunities.

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