Question

What is high frequency trading? What are the supports and concerns regarding high frequency trading?

Answer 1

High frequency trading is a type of algorithmic trading in which large volumes of shares are traded (purchased and sold) automatically at very high speeds.It relies on synthesising information faster than other traders using sophisticated trading algorithms and powerful computers, often co-located near the electronic matching systems within securities exchanges. The transaction speed is in milliseconds. Higher speed results in more profits compared to conventional trading.

Positive side of HFT is that it increases liquidity in the markets and allows for lower market volatility. it provides lower trading costs and make it easier to sell lower-volume securities.

Traders in HFT may use some market strategies that can change the market and exacerbate market fragility. lack of transparency in system can harm overall price discovery