High-frequency trading (HFT) is an automated trading platform that large investment banks, hedge funds, and institutional investors employ. It uses powerful computers to transact a large number of orders at extremely high speeds.
These high-frequency trading platforms allow traders to execute millions of orders and scan multiple markets and exchanges in a matter of seconds, thus giving institutions that use the platforms an advantage in the open market.
The systems use complex algorithms to analyze the markets and are able to spot emerging trends in a fraction of a second. By being able to recognize shifts in the marketplace, the trading systems send hundreds of baskets of stocks out into the marketplace at bid-ask spreads advantageous to the traders.