High-Frequency Trading (HFT) is trading at the speed of light — literally. HFT firms use ultra-fast computers, co-located servers (placed inside exchange buildings), and sophisticated algorithms to execute thousands of trades per second, holding positions for milliseconds to microseconds.
HFT strategies exploit tiny price differences across exchanges, anticipate order flow, and provide market liquidity. A typical HFT profit might be $0.001 per share — but multiplied by millions of trades daily, it adds up to billions annually. Firms like Citadel Securities, Virtu Financial, and Jump Trading dominate the space.
HFT accounts for 50-60% of all US equity trading volume. Critics argue it gives unfair advantages to firms that can afford the fastest technology, creating a "two-speed market." The 2010 Flash Crash — when the Dow dropped 1,000 points in minutes — raised serious questions about HFT's role in market stability.