HFT Wins on Speed, Location, Algorithm, Why Retail Traders Are Disadvantaged?

HFT chases profits in milliseconds!!!

What is HFT?

High Frequency Trading (HFT) uses computer algorithms to place and cancel orders at sub-second speeds.

Retail trader:

"So I just need a program to do it?"

No, you need speed, infrastructure, and data access together.

Why does this matter?

HFT can add liquidity and narrow spreads.

At the same time, massive order submissions and cancellations can increase market volatility.

The execution mechanics hinge on location, speed, and algorithms.

Firms colocate servers at exchanges to cut response time.

They react to market data at ultra-fast speeds and execute hundreds to thousands of trades.

How do orders move?

Example calculation (hypothetical):

Spread: 0.5원

Execution fee: 0.03원/주

One round-trip trade profit target: 0.4원/주

Volume: processing 1,000,000 shares yields total expected profit = 0.4원×1,000,000 = 400,000원

Total fees = 0.03원×2×1,000,000 = 60,000원

Net profit ≈ 340,000원, and enforcement, delays, or slippage can immediately turn it negative.

This example is hypothetical, but margins are extremely thin so speed and costs determine success.

Glossary

HFT → an automated strategy placing and canceling orders at sub-second intervals to accumulate small profits.

Spread → the difference between bid and ask, the basis of trading cost.

Slippage → the gap between expected order price and actual execution price.

Misconception 1: HFT always disrupts markets?

Partly true.

Excessive order cancellations increase noise and short-term volatility.

However, not all HFTs are the same, and some act as liquidity providers.

Misconception 2: Can individuals win the speed race?

Almost impossible.

Colocation, dedicated lines, and professional algorithm investment are required.

Retail traders trying to mimic HFT may only lose fees.

Regulation and market responses?

Exchanges respond with cancellation fees, minimum execution sizes, and trading delays.

Regulation aims to balance market health with liquidity.

So what should you do first

→ 1. Check whether your trading falls into HFT territory, and review average execution times and strategy.

→ 2. Calculate execution costs (fees+spread+slippage) with hypothetical trades.

→ 3. Test speed and profit sensitivity with paper trading, then try small real capital after experiments.

For reference only.

PickStock 💡

Chart Technicals

※ This article is for information only and is not investment advice.

※ Investment decisions and responsibility rest with the investor.

※ Figures are as of the time of writing and may change.