What is High-Frequency Trading?

Remember the quote “time is money”?

According to The New York Times, that game is over. Kaput. Now it’s “speed is money.” In an article entitled, The New Speed of Money, Reshaping Markets, Graham Bowley of NYT writes:

In many of the world’s markets, nearly all stock trading is now conducted by computers talking to other computers at high speeds. As the machines have taken over, trading has been migrating from raucous, populated trading floors like those of the New York Stock Exchange to dozens of separate, rival electronic exchanges. They rely on data centers like this one, many in the suburbs of northern New Jersey.

Hedge funds that build their investment style around the lightning-fast trading technology are known as “high-frequency traders.” But how do they make money trading in and out of securities in nanoseconds? Here’s a video from Marketplace that spells it out:

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