WHY does it exist? Markets auctions hain. Jo pehle naye information ko dekhta aur act karta hai, woh edge capture karta hai prices adjust hone se pehle. Speed literally hi product hai.
WHAT are we counting? Maan lo ek market maker quote karta hai:
Bid price Pb (woh price jis par woh buy karega)
Ask price Pa (woh price jis par woh sell karega), jahan Pa>Pb.
HOW does profit arise? Agar ek buyer ask par hit kare aur ek seller bid par hit kare, toh maker:
1 share Pb par khareedta hai
1 share Pa par bechta hai
Profit per round trip=Pa−Pb≡s(the ==spread==)
Ab yahi N baar per day karo:
Πgross=s⋅N
WHY subtract costs? Har trade exchange fee c per share pay karta hai (ya rebater earn karta hai agar tum liquidity add karo). Do legs per round trip ke saath:
WHY does distance matter? Information (zyada se zyada) light speed clight≈3×108 m/s par travel karti hai (fibre mein slower, ≈2×108 m/s). Fibre pe d metres door server tak round-trip time:
HFT ko ordinary algo trading se kya alag karta hai
Microsecond–millisecond latency, huge order turnover, bahut choti holding periods (day-end tak flat), aur colocation.
Market making mein bid–ask spread hota hai
Maker ke sell (ask) aur buy (bid) price ke beech ka gap s=Pa−Pb, jo per round trip capture hota hai.
Market-maker daily net P&L ka formula
Πnet=(s−2c+2r)N, fee c ke saath, rebate r, N round trips.
Colocation edge kyun deta hai
Signals ~light speed par travel karti hain; exchange se metres ki doori round-trip latency ko milliseconds se sub-microseconds tak cut kar deti hai, toh tum pehle act karte ho.
Liquidity rebate kya hai
Ek chota payment (r) jo exchange liquidity add karne ke liye deta hai (ek resting order post karna jiske against dusre trade karte hain).
HFT profit model ek phrase mein
Tiny edge per trade × enormous number of trades.
Spoofing kya hai
Bina execute karne ki intent ke orders place karna market ko mislead karne ke liye — illegal; legal cancels se intent se alag hota hai.
HFT mostly direction predict karne ke baare mein kyun nahi hai
Yeh structural, microsecond-lived edges (spreads, rebates, arbitrage) harvest karta hai jo long-term price direction par depend nahi karti.
Fibre par round-trip latency ka formula
t=2d/vfibre, jahan vfibre≈2×108 m/s.
HFT profit exchange fees ke liye sensitive kyun hai
Edge per round trip s−2c+2r hai; chote fee changes poori strategy ka sign flip kar sakte hain.
Recall Feynman: 12-saal ke bachche ko explain karo
Ek ice-cream stall imagine karo jahan ice cream ki price ek second mein ek hazaar baar badlti hai. Tumhara ek super-fast robot seedha counter par khada hai, jabki baaki sab shehar ke us taraf se daud rahe hain. Tumhara robot 10 cents mein khareedta hai aur turant 11 cents mein bechta hai — sirf 1 cent ka profit — lekin yeh lunch se pehle ek million baar karta hai. Woh ek penny, ek million baar, bahut zyada paisa hai. Aur kyunki tumhara robot sabse paas khada hai, woh hamesha pehle pahunchta hai. Yahi HFT hai: kal ke baare mein smart hona nahi, bas abhi sabse fast hona aur ek choti si trick bahut zyada baar karna.
