High Frequency Trading (HFT) involves using sophisticated algorithms and ultra-fast computer systems to execute large numbers of trades in fractions of seconds. HFT strategies capitalize on small price discrepancies, market microstructure inefficiencies, and short-term supply-demand imbalances. These systems require advanced technology infrastructure, co-location services, and direct market access.

HFT has transformed market structure by increasing trading volumes and reducing bid-ask spreads while raising concerns about market stability and fairness. Regulatory oversight has increased following incidents like the 2010 Flash Crash. HFT firms provide liquidity during normal conditions but may withdraw during stress periods, potentially amplifying volatility.

Real-world example: An HFT algorithm detects a 0.1-cent price discrepancy in Apple stock between different exchanges, executing 10,000 trades in milliseconds to capture arbitrage profits totaling $1,000 before the discrepancy disappears.