HFT: High-Frequency Trading
Also known as: HFT, high frequency trading, low-latency trading, ultra-low-latency trading
What is it?
High-frequency trading is automated trading in which speed itself is the edge: orders are placed, amended and cancelled in microseconds, and the identical strategy run a millisecond later stops being profitable. The strategies are narrow. Most HFT is electronic market making - quoting both sides and collecting the spread thousands of times a day - alongside latency arbitrage between venues and short-horizon inference from the order book.
| Participant | Round-trip latency | Holding period | Where the edge is | Competing on speed? |
|---|---|---|---|---|
| Colocated HFT firm | ~0.1 ms | Milliseconds to seconds | Queue position and fill rate | Yes - that is the whole edge |
| Institutional desk | ~5 ms | Minutes to days | Research and size | Partly |
| Retail bot on a VPS | ~30 ms | Hours to weeks | The strategy rules | No |
| Retail bot at home | ~120 ms | Hours to weeks | The strategy rules | No |
Positions are held for milliseconds to seconds, and the edge per trade is a fraction of a tick. Profitability comes from repetition, not from any single trade being good, which is why these firms measure success in fill rates and queue position rather than in win rate. For a retail trader the practical conclusion is not to compete but to know where the boundary is.
A colocated firm sits roughly 0.1 ms from the matching engine; a well-placed retail VPS is near 5 ms and a home connection near 120 ms - three orders of magnitude on the same trade. That difference is irrelevant to a strategy holding positions for hours, and decisive for one that needs to be first. If a backtested edge disappears once you add 100 ms of delay, it was a latency strategy wearing another name.
Why it matters: HFT competes on microseconds a retail account cannot reach, so any strategy whose edge needs to be first is the wrong one to automate.
HFT does not compete for a retail swing entry, but it shapes the liquidity a market order is actually filled against.
Real-world example
A colocated firm sits about 0.1 ms from the matching engine while a retail VPS in the same city sits near 5 ms and a home broadband connection near 120 ms - a thousandfold gap on the same order.
How SignalBots handles it
SignalBots targets sub-10 ms signal delivery so an automated entry is not lost to routing delay, while the strategies it drives hold positions long enough that microseconds were never the edge. See /risk-warning.
Pro tip
Re-run any promising backtest with 100 ms of artificial delay added to every fill. If the edge evaporates, the strategy was competing on speed and will not survive retail execution.
Common pitfalls
Paying for a low-latency setup to run a strategy that holds trades for hours, where shaving 50 ms changes nothing about the result.
Frequently asked questions
Can a retail trader do high-frequency trading?
Not in the sense the term is used professionally. Competing requires colocation next to the matching engine, direct exchange membership and custom hardware, all of which sit far outside a retail account's cost structure.
Does HFT hurt retail traders?
The evidence is mixed and depends on the strategy. Electronic market making has narrowed spreads considerably, which helps a retail order, while aggressive latency strategies can pull liquidity away exactly when a large order arrives.
Is scalping the same as HFT?
No, though they are often confused. Retail scalping holds trades for minutes and is decided by the strategy's logic; HFT holds for milliseconds and is decided by who reaches the book first.
Why do HFT firms cancel so many orders?
Quoting continuously means constantly repricing as the market moves, so most orders are replaced rather than filled. A cancel-to-fill ratio in the hundreds is normal for a market maker and is not evidence of manipulation by itself.
Does a faster VPS make my bot competitive with HFT?
It closes the gap between you and other retail traders, which can be worth it for entries around news. It does not put you in the same race as a colocated firm, and no amount of retail latency tuning changes that.
Trading involves substantial risk of loss. Historical and backtested results do not guarantee future performance. Read the full risk warning.
