CS1102 - Course Project - 2024/2025 Semester B - Wu Wenluo, Wu Kong Lung, Rihad Sunbim Zahin, Cheng Si Lok

II. Overview

HFT relies on a variety of sophisticated algorithms designed to maximize profits while minimizing risks at the same time. Certain key strategies include:

• Statistical Arbitrage: Traders use mathematical models to track and exploit temporary price inefficiencies between related financial instruments. These models use methods such as cointegration and pairs trading to generate large profits.
• Market Making: HFT firms continuously provide buy and sell quotes for financial instruments, which allows them to profit from bid-ask spreads. These algorithms minimize risks by incorporating inventory management and adverse selection mitigation.
• Momentum Ignition: This strategy is executed by placing a series of trades to create artificial price trends, catching the attention of other traders. Techniques such as order book analysis and aggressive order placement are incorporated in these strategies to manipulate market movements.

Beyond these strategies, HFT faces significant implementation challenges, such as high infrastructure costs, the need for advanced computing resources, and regulatory scrutiny aimed at ensuring fair market practices.