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From Algorithms to Market Dynamics: A Literature Review on High-Frequency Trading
- 1 School of Economics, University of Sydney, Sydney, NSW, Australia
* Author to whom correspondence should be addressed.
Abstract
High-frequency trading (HFT) uses advanced technologies and sophisticated algorithms to make transactions at unprecedented speeds, which could significantly impact modern financial markets. This literature review examines the technological foundations, primary trading strategies, market impacts, regulatory environment, risk management practices, and future research directions in HFT. The findings reveal that HFT could increase market liquidity and price discovery but also increase volatility during periods of high market stress. Regulatory frameworks such as the SEC’s Market Access Rule and MiFID II aim to monitor and control HFT activities, at the same time effective risk management practices are crucial for maintaining market stability. Future research should focus on emerging technologies such as AI, ML, quantum computing, and blockchain, along with a better understanding of market structure and global regulatory coordination. This review provides valuable insights for market participants, regulators and researchers, contributing to a balanced perspective on HFT’s role in contemporary financial markets.
Keywords
High-frequency trading (HFT), Market liquidity, Trading algorithms, Risk management.
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Cite this article
Pan,Z. (2024). From Algorithms to Market Dynamics: A Literature Review on High-Frequency Trading. Advances in Economics, Management and Political Sciences,117,13-18.
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