High Frequency Trading or HFT is a form of automated trading which cashes in on fleeting market opportunities through a deluge of orders executed in fractions of a second. Positions may be held only for minutes, the ‘portfolio’ is churned furiously and no position is carried overnight!
Given that they are chasing minuscule gains from high volumes, high-speed traders gain by shortening their execution time to a few milli-seconds.
Stock exchanges around the world (and in India too) have actively aided and abetted HFT by allowing market players to rent ‘co-location’ facilities at the exchange itself.
With their terminals huddled close to the exchange’s servers, co-located members — through fibre optic connectivity — execute trades at a fraction of the time that others do.