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5:00High-Frequency Trading: The Speed Arms Race
A signal crosses 790 miles from Chicago to New Jersey in about 4 milliseconds. Firms have spent hundreds of millions of dollars to shave off the last few microseconds, because in a continuous market, being first is the whole game.
High-frequency trading (HFT) is automated trading characterised by very high speeds, very short holding periods, and ending the day flat. The SEC's 2010 Concept Release lists its hallmarks: extremely fast, low-latency systems; co-location and proprietary data feeds; very short timeframes for establishing and unwinding positions; submitting many orders that are quickly cancelled; and carrying little or no overnight position. HFT is not a single strategy but a technology — it powers market making, statistical arbitrage, and latency arbitrage.
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