In the last 25 years, we have been subject to a technological revolution based on improvements in information technology with the world of finance being one of the first sectors to benefit from it. The IT revolution in finance began with the digitalization of trading venues and progressed to what is now a full automatization of the trading process including decision-making. High-frequency trading (HFT) is a subset of algorithmic trading, which means that algorithms themselves decide when and how to submit orders and engage in trading based on given inputs. HFT by itself is just a method of using algorithms based on high speed; quicker data transmission, faster data analysis and expedite decision-making. HFT technology can be used in a wide array of ways. Some strategies like market making and arbitraging are overall beneficial for financial markets as they increase market efficiency, other, some more aggressive strategies are market neutral, while a third set of strategies can be considered illegal and akin to market manipulation. The overall market effect of the spread of HFT is still ambiguous. The general consensus is that HFT causes greater market efficiency and speeds up price discovery. On the other hand, opinions differ about its effect on liquidity, volatility and market stability. The latter especially in the light of the role of HFT during flash crashes. Due to all the negative externalities HFT can cause, there is a strong need to regulate this field. Both American and European regulators have imposed rules to safeguard market stability and integrity on both HF traders and trading venues. Furthermore, there is a separate body of regulation covering possible market manipulation. Alongside regulators, there has been a number of other responses to HFT, predominantly through the creation of dark pools and new trading venues.
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