High-frequency trading (HFT) has long been labeled the ugly duckling of the financial world. “It’s unclear and unfair,” critics cry. “The margins are razor-thin, and the security is shaky at best.” But hold on—many of these claims come from those who’ve barely scratched the surface of what HFT is.
At Dysnix, we’ve spent years crafting robust infrastructures for industries that demand nothing less than perfection, including blockchain and finance. So, if you’re curious about what powers HFT, let us share a trick or two about its underlayer.
The trading flow for those who want to buy and sell in nanoseconds hasn’t changed from centuries ago, wasting years for a single successful trade. It’s all the same in a core:
The distinctive feature of HFT is that all of these actions are based on ultra-low-latency networks and high-speed data transmission and analysis. The trading platform's algorithms are improving and self-educating for more efficient actions, and overflowing market data pools are oceans that can be crossed within nanoseconds.
HFT companies are new F1 racing that bring more adrenaline to the players and audience, demonstrating billions of trades in a blink of an eye.
It uses algorithms to execute thousands of trades in milliseconds, profiting from diminutive price differences. It thrives in markets where speed is critical, like stocks, crypto, and commodities.
When we say small price differences, we mean even the most minor discrepancies. Margins are microscopic—but that’s the point. HFT doesn’t rely on big wins; it thrives on consistent, incremental gains over millions of trades. Think of it like mining cryptocurrency: individually, each mined block isn’t much, but scale it across a mining farm, and suddenly, you’re swimming in profit.
Here’s a real-world analogy from the blockchain: ever notice how validators on a proof-of-stake chain like Ethereum have rewarded fractions of ETH per block? They’re not chasing a jackpot but building wealth one block at a time. HFT traders operate on the same principle.
The HFT systems are trying to conquer the speed of light implementing shortest tick-to-trade pipelines. Here’s an example.
If Exchange A releases a price update at 10:00:00.001000 (1 millisecond past 10:00), an ultrafast system might receive, process, and execute a trade by 10:00:00.001500 (within 0.5 milliseconds). A slower system, even lagging by 1 millisecond, misses the opportunity.
HFT can be applied by hedge funds, proprietary trading firms, and crypto traders globally. And they can do that successfully thanks to their infrastructure features like:
Traders co-locate servers near exchanges to minimize latency, ensuring faster order execution. Key locations include financial hubs like New York, London, and Hong Kong. While controversial for potentially increasing market volatility, HFT boosts liquidity and narrows bid-ask spreads.
Let’s go behind the curtains of this flow to see what kind of high-frequency trading network architecture makes the best HFT.
So you see, we need a fast, highly reliable, always available, data-flashing custom engine. What hides inside the high-frequency trading infrastructure that makes it so unique?
On-the-go risk checks within FPGA architectures are critical. Using preprogrammed logic blocks, these systems evaluate trade sizes, portfolio limits, and market exposure in real-time without delaying order execution. This ensures regulatory compliance and safeguards against excessive losses.
Ultra-low-latency describes the total delay from when a market event occurs to when a trader’s system reacts to it, usually measured in microseconds. It consists of:
To achieve nanosecond-level latency, modern systems optimize data paths using pipelined designs in FPGAs, where each stage handles specific computational tasks without waiting for others. For instance, in one implementation, pipelined operations calculate correlation matrices and eigenvalues (eigenvalues are used to identify correlations or patterns in financial data) for portfolio analysis.
Once computations identify opportunities, execution strategies like arbitrage or momentum trading are executed. These strategies, programmed directly into FPGA logic, can be pre-tested against historical data to minimize execution risk while ensuring ultrafast order placements.
So that’s what we fight with. Pretty neat.
We believe that such powerful infrastructures aren’t for “chosen ones.” Even solo traders are powering their strategies with HFT techniques, and it’s because technical and algorithmic creativity still leaves plenty of space for investigations and inventions. We’ll be glad if you invite Dysnix to participate in your HFT story.
