High‐Frequency Trading and Existing Revenue Models

This chapter discusses the basic concepts of high-frequency trading: what it is; why it is important; who the major players are in the United States; how it earns a profit; and how to categorize high-frequency trading operations? High-frequency trading extends program trading that normally uses computer algorithms to execute a collection of trading orders at fast speeds, boosting market liquidity. There are four elements of a high-frequency trading system: computer algorithms; market liquidity booster; collection of orders; and faster speed than manual executions. Among the four elements, computer algos and liquidity booster are the necessary conditions to forming a high-frequency trading operation. This chapter also discusses the major high-frequency trading firms in the United States, the basic revenue models of high-frequency trading firms and the four types of high-frequency trading operations.