How the emergence of high frequency trading is altering the financial landscape as firms look to make money on the millisecond

Over the last few decades, regulators globally have been promoting greater transparency and competition among the exchanges in their market. Such regulatory changes, along with the advent of highly sophisticated and fast computer technology have given rise to a new class of trading known as high frequency trading (HFT). Since its inception at the turn of the 21st century, the popularity and usage of high frequency trading has been growing at an astonishing rate globally, bringing about significant changes in the way capital market firms carry out their trades. The floor-based style of trading is gradually being phased out, as more and more firms adapt to this new style of automated trading.

While HFT has numerous advantages, it creates its own set of unique challenges. Due to a number of market events, HFT has come under criticism, resulting in regulators from across the world putting forth proposals aimed at curbing current HFT practices. The recent controversies and regulatory proposals surrounding HFT have made most market participants sit up and take notice.

This paper introduces the concept and origin of HFT, its impact on the markets, and what has caused regulators to pay special attention to this form of trading. The paper also talks about how both new and existing HFT firms can potentially benefit by focusing on certain investments and capabilities.