Question

What are some causes for widespread usage of high frequency trading?

Answer 1

Some causes of widespread usage of high-frequency trading:

1. Increase in competition: There is an increase in the overall competition in the market at the national as well as individual levels. Thus, due to an increase in competition, there is a need to adopt such technology which helps in speedy conduction of order and response procedure, thus causing the use of High-frequency trading.

2. Cost reduction: High-frequency trading includes the usage of technology, thus it helps to reduce the cost of human capital in the company for taking orders which were earlier taken by Humans. HFT has replaced human beings, and because of this, the cost is reduced. This is the reason why HFT is popular.

3. Liquidity: Under HFT, every big order is divided into different small orders to increase the number of orders and to decrease the size of orders. It facilitates the big and small traders to handle the orders, by the division of orders. Due to this division of orders in the organization, liquidity is also improved.

4. Price- efficiency: High-frequency traders improve the efficiency in the market regarding the information, as because of the improved technology, they can collect a lot of information about the bids at one place in a quick manner. It results in the improvement of price efficiency in the market because of the presence of an adequate amount of information for the investors.

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