HFT Strategies
Methodology
HFT strategies operate on sub-second to microsecond timescales and rely on speed, scale, and market microstructure knowledge rather than directional price prediction. The three primary categories — market making, arbitrage, and execution algorithms — each have distinct signal sources, risk profiles, and infrastructure requirements.
Analysis here is conceptual and infrastructure-focused. Profitability depends heavily on execution latency, venue selection, and real-time risk controls that are not captured in daily-bar backtests.
High-frequency strategies typically involve market making, arbitrage, or execution algorithms that rely on speed and scale.
Market making
Quoting bid and ask on one or many instruments and earning the spread while managing inventory risk. HFT market makers update quotes in response to order flow and market data at microsecond speed.
Arbitrage
Exploiting price differences across venues (cross-venue arbitrage), between related instruments (statistical arbitrage), or across time (latency arbitrage). Requires fast data and execution to capture fleeting opportunities.
Execution algorithms
TWAP, VWAP, implementation shortfall, and smart order routing to minimize market impact and execution cost. Often combined with real-time alpha signals for execution timing.