High-Frequency Trading Strategy And Statistics – HFT Backtest

The high-frequency trading strategy is a method of trading that uses powerful computer programs to conduct a large number of trades in fractions of a second. It is a type of algorithmic trading strategy that uses high speeds, high turnover rates, and high order-to-trade ratios to take advantage of small, short-lived profitable opportunities in the markets.

The emergence of the internet gave rise to electronic trading. With the advancement in supercomputers and electronic communication, high-frequency trading has become commonplace in today’s financial markets. But what exactly is a high-frequency trading strategy?

In this post, we take a look at high-frequency trading strategy and explain what it is. We end the article by discussing high-frequency backtesting and if retail traders actually can be successful at HFT trading.

What is a high-frequency trading strategy?

High-frequency trading (HFT) is a method of trading that uses powerful computer programs to conduct a large number of trades in fractions of a second. That is, supercomputers are programmed to use complex algorithms to analyze multiple markets, identify profitable opportunities, and execute trades in fractions of a second.

HFT, therefore, can be considered a type of algorithmic trading strategy characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools.

It uses sophisticated technological tools and computer algorithms to rapidly trade securities. In fact, there is no single definition of HFT; however, its key attributes include highly sophisticated algorithms, the closeness of the server to the exchange’s server (colocation), and very short-term trading durations.

The strategy is mostly employed by institutional traders who have the necessary resources to use high-powered computers to analyze the markets and identify trends in a fraction of a second. The super-fast computers can analyze the markets and spot minute and short-lived profitable opportunities before they become clear to other traders watching the markets.

What is the percentage of high-frequency trading in the stock market?

According to various sources, the percentage of high-frequency trading (HFT) in the stock market varies by region and asset class. In the US equity markets, HFT represents about 50% of trading volume23. In European equity markets, its share is estimated to be between 24% and 43% of trading volume, and about 58% to 76% of orders2. In 2016, HFT on average initia