Definition
High-frequency trading
High-frequency trading holds positions for seconds to minutes and lives on execution quality rather than forecasting. What HFT is, and why friction decides the outcome.
High-frequency trading is automated trading in which positions are opened and closed over seconds to minutes, and profitability depends on execution quality rather than on predicting where a market is going. The edge per trade is small by design and is repeated many times, which means fees, spread, and slippage are not a rounding error but the dominant term. A rule that is profitable before costs and unprofitable after them is the normal outcome, not an unlucky one.
- Also known as
- HFT · low-latency trading · short-horizon systematic trading
How it is calculated
Net edge per trade = gross edge − fees − spread paid − slippage
At a few basis points of gross edge, the subtracted terms dominate.
Shortening the holding period multiplies how often they are paid,
so the same signal can be profitable daily and loss-making by the minute.
Friction, not forecasting, decides it
When an average trade earns a few basis points, a fee schedule or a widened spread can invert the whole result. This is why an HFT strategy is evaluated on realised costs rather than on signal quality, and why win rate alone says so little: QANTERION publishes typical win rates of 37% on crypto, 56% on US stocks and 31% on precious metals, and those numbers are only interpretable next to the fee and drawdown figures beside them.
Speed is a constraint, not a strategy
Being fast does not create an edge; it only preserves one that already exists against competitors who would otherwise take the same fill. For most participants the binding constraint is not latency but capacity: a short-horizon edge is usually small in absolute terms and stops working once the size traded moves the price it depends on.
How it gets misread
High-frequency trading is often assumed to be a faster version of ordinary trading, so that any strategy improves by running it more often. The opposite holds: shortening the horizon multiplies the number of times costs are paid, and a rule with a genuine edge at daily frequency can be reliably loss-making at minute frequency for that reason alone.
Calculate it
Sources
- High-frequency trading in the foreign exchange market — Bank for International Settlements, Markets Committee
Definitions are educational. Nothing here is investment advice, and no metric described on this page predicts future results.
Definitions are the easy part
Knowing what drawdown means is not the same as having a system that halts on it. QANTERION applies these limits while a strategy runs.