Clear DefinitionsHigh-Frequency Trading (HFT)
1 min read
Pronunciation
[hahy-free-kwuhn-see trey-ding]
Analogy
Like a race car making hundreds of pit stops per minute to optimize performance in real time.
Definition
Algorithmic trading strategy that executes a large number of orders at very high speeds, often leveraging low‑latency connections and co‑location to capitalize on minute price discrepancies.
Key Points Intro
HFT relies on speed, automation, and statistical edge to profit from small market inefficiencies.
Key Points
Low latency: Direct market access and co‑location near exchange servers.
Algorithmic strategies: Market making, arbitrage, and statistical models.
Order volume: Very high message rates with small per‑trade profit.
Risk controls: Real‑time monitoring to prevent runaway algorithms.
Example
An HFT firm arbitrages sub‑millisecond price differences between ETH/USDC on two DEXs via private RPC endpoints and flashbots.
Technical Deep Dive
Trading systems use kernel‑bypass networking (DPDK), FPGA‑based order engines, and optimized C++ code. Latency measured in microseconds; risk engines enforce kill‑switches on anomaly detection.
Security Warning
HFT can exacerbate flash crashes; implement circuit breakers and throttles.
Caveat
High infrastructure costs and competition limit accessibility to large players.
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