High-frequency trading (HFT).

In plain English

High-frequency trading is a subset of algorithmic trading built around latency, where the edge comes from acting microseconds before someone else. Firms place servers close to exchange matching engines, buy the fastest data feeds, and hold positions for seconds or less. Profit per trade is tiny, so the model depends on doing it millions of times. Much of the activity is electronic market making, quoting both sides and collecting spreads. Supporters point to narrower spreads, and critics point to fleeting quotes and to episodes where automated liquidity vanished exactly when it was needed.

01Why it matters

You are not competing with these firms on speed and you do not need to, but their presence explains why spreads are narrow on most days and why they can widen in seconds.

02The math, step by step

Say a firm captures a 0.002 dollar edge on 300,000 shares in one stock in a day. That is 600 dollars. Run the same strategy across 2,000 stocks and the arithmetic changes completely, which is why the business is about volume rather than any single trade.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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