Ya. I have a tendency to post quickly, then go back and clean up my thoughts. Read above again and you will see this contingency.
OP, HFT is a buzz phrase that generally speaking most people don't understand and generally apply a negative connotation to. I'd suggest you read the HFT scum thread in this section. There is some pretty good info there if you can weed out all of the BS from 777 and others.
@ Earlyexit: i've visited tradeworx a # of times. The site is quite informative. However, this is a company that specializes in HFT and thier explanations seem to have a bias. @ WinstonTJ: Can you pls attch a link to the thread you are talking about. Thanks. Meanwhile, if anyone can still explain the technicalities of HFT in layman terms, please feel free to do so.
Bias towards HFT? Probably. But, it should answer your question on what HFT is at the very least. Which is what I thought you were looking for-- a basic understanding of what it is. Not whether it is right or wrong. If you really want a layman basic definition. -- Fast buying and selling. Could be arbitrage, market making, or prediction of future prices. Check out this link if you are looking for more right vs wrong debate information: http://www.cnbc.com/id/38343584/ There is a book called "All about High Frequency Trading" at your local bookstore. Go read it over. It is about as basic as it gets while still providing some actual meaty information.
High frequency trading is based on algorithms that analyze the order book and try to balance demand and supply the fastest way possible while doing it as often as possible. It is a modern type of a market maker with no obligation to provide liquidity when it is not advantageous. HFT is the modern market maker in the era of high speed data transfers. Whoever does not like HFT should abandon day trading scalping and join traders like me who have increased their time frame to several minutes, hours or even days. White noise from HFT does not affect the profitability of traders in those longer timeframes. The slippage HFT creates is much smaller than the wide spreads in the old era of human market makers.
@ Earlyexit: Thanks for the input. I think I have more questions than can realistically be answered here. Hence, I will probably take your advice and go over the recommended book.
In the old days, they do it manually (front run/trading leveraged indices futures orders) then call each other (pension funds, mutual fund, hedge fund, etc) first before buying/selling in Huge collaborated amount of stocks to push the indices futures already bought/sold ahead at the same time... Now they automate this process at high speed and call it "HFT"... Is it something like that ?
More or less. I remember one time they caught about 180 Swiss Franc pit traders arranging next day's quotes in the parking lot of the CME. Does anyone remember the story? Things in many respects are better now.