“ Like regular investing, high frequency trading is all about information. However, instead of standing on the pillars of solid cash flow and a clean balance book, HFT can work off of almost any signal: Twitter, CNN, and ongoing market pricing. Using minuscule slices of time, or perhaps a stock’s association with negative words like “loss” or “disaster”, algorithms try to deduce ‘momentum’ for any given stock. It may even be the disparity between a stocks bid and ask price. These prices determine the cheapest place to buy a stock, and the most expensive place to sell it. Stocks are then bought and sold at breakneck speed, often only holding a stock for a second to make microscopic profit. These microscopic profits are repeated ad infinitum, and a business is born. Some estimates put high frequency trading as a 20 billion dollar a year business.
1.04.11
