Equity markets have entered an era where machines are rapidly replacing humans. Programme-driven trades account for around 70 per cent of equity trading in the US and for 40 per cent in Europe. We in India are not far behind with one-third of trades in both cash and derivative segments of the National Stock Exchange driven by such programmed orders.
While many of these programmes use algorithms that execute orders through the day, speed is vital in one subset of algo trading known as high-frequency trading (HFT). In HFT, the programme that smells out opportunities and executes them the fastest, scores. Execution time is measured in milliseconds, or one-thousandth of a second. One buy and sell transaction could take just 10 milliseconds and in the race for being the fastest, traders are moving their terminals as close to the exchange servers as possible.