How to Make Money From High Frequency Trading


What is high frequency trading?

This is the use of very powerful high speed computers to execute trades by transmitting millions of orders at lightning speed making millions of dollars in milliseconds. It enables high frequency traders look into literally look into a crystal ball just before making a trade to find out where a stock is going before they place their order,….and it’s legal.

On Wall street, stock trading has always been a straight forward business, sellers and buyers come together at the floor of the stock exchange, go back and fort until they reach a deal. However, in 1998 this changed. Electronic commissions where authorized to open the market to anybody with a laptop or desktop computer to trade from the comfort of their office or home.

Fast forward to today, stock trading has become so high tech that speed determines who wins or loses. The computers on Wall Street are so fast that regular pc’s cannot cope with them. The big question is how does his work does and how can the individual stock trader take advantage of these fast pc and make money executing high frequency trading?

This is how high frequency trading works. Assuming you are interested in a stock and you decide to buy a large chunk. In order not to draw undue attention to your trade and cause the stock price to increase, you break down your purchases into maybe 10 small batches. As you and other traders that are interested in buying that stock start placing or issuing buy orders, these high frequency computers then come in. What they do is that they kind of intercept the order you placed, show your buy requests or intentions to traders who have access to these very fast computers very quickly within 3 milliseconds or 0.03 seconds.

Since these traders involved in high frequency trading already know what you are going to buy and your order has been initiated, they buy up the stocks and by the time your order gets there they own the stock and they just turn around and sell the stocks to you making a profit. Remember all this happens within fractions of a second. Now, imagine doing several of these within a minute, an hour or a full trading day and you begin to understand how profitable it is and how it is very easy to make millions with software and fast computers.

The computers and software spot trends in the market before other investors, alert the high frequency traders who then quickly place orders in milliseconds, known as flash orders and then make a killing.

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