DEFINITION of 'High-Speed Data Feed'

High-speed data feeds, which transmit data such as price quotes and yields in real time and without delays, are used in high-frequency trading for real time data analysis.

BREAKING DOWN 'High-Speed Data Feed'

High-speed data feeds provide computerized algorithmic traders with faster more reliable data. Because high frequency trading (HFT) is driven by faster access to data, there has been a technological arms race, as data feeds and transactions approach the speed of light. HFT creates natural monopolies in market data, which critics say has given high-frequency traders an unfair advantage over institutional and retail investors.

Advocates claim HFT has a beneficial role in the market, deepening market liquidity and pricing securities more efficiently than other intermediaries, and lowering lowering trading costs for everyone by tightening spreads. To maintain a fair and orderly market, the New York Stock Exchange introduced designated market makers in 2008, to facilitate price discovery and provide liquidity to both institutional and retail investors — much of it electronically through HFT.

The HFT industry has used many controversial predatory trading practices — as our guide to HFT terminology outlines — such as front running, where traders detect incoming orders and jump in front of them, before they can be executed. Investors say that because many HFT reduces long-run returns because they take a share of the profit.

High-Speed Data Feeds Are Here to Stay

The stock market now consists of a vast fragmented network of interconnected and automated trading systems, in which high frequency trading, characterized by high speeds, ultra-short holding periods and high order-to-trade ratios, comprise a meaningful share of U.S. equity trading volume, even though that share has shrunk somewhat to around 50%. Smaller volumes, low market volatility and rising regulatory costs have compressed HFT margins, and led to consolidation in the industry.

To address issues of exchange competition, regulators have introduced speed bumps, that randomize entry times and introduce random order processing delays. After the new IEX exchange introduced its alternative trading system, which slows orders by 350 microseconds to neutralize high-frequency traders' advantage, the New York Stock Exchange followed suit in 2017, on its exchange for small and mid-cap companies.

Bloomberg's B-PIPE data feed, Thomson Reuters’ Matching Binary Multicast Feed and EBS Brokertec’s Ultra are examples of high-speed feeds, which provide investors and vendors market data with extremely low latency — the that elapses from the moment a signal is sent to its receipt.

RELATED TERMS
  1. High-Frequency Trading - HFT

    High-frequency trading - HFT is a program trading platform that ...
  2. Real Time

    Real time is when a system relays information to a user at a ...
  3. Exchange

    An exchange is a marketplace in which securities, commodities, ...
  4. Random Factor Analysis

    Random factor analysis is a statistical technique to decipher ...
  5. Algorithmic Trading

    Algorithmic trading is a system that utilizes very advanced mathematical ...
  6. Third Market Maker

    A third market maker is a third-party securities dealer who is ...
Related Articles
  1. Trading

    The World Of High Frequency Algorithmic Trading

    What’s behind the scenes of HFT? Here's a detailed look at the breakneck world of algorithmic and high-frequency trading
  2. Trading

    Has High Frequency Trading Ruined The Stock Market For The Rest Of Us?

    HFT is a controversial trading strategy. This article looks at how HFT affects the retail investor.
  3. Trading

    Is Liquidity Improved By High Frequency Trading (HFT)?

    Is the market liquidity provided by high frequency trading a reality or an illusion?
  4. Insights

    Hedge Funds and the Law

    Learn how hedge funds have gotten in trouble for illegal insider trading. Read about questionable high-frequency trading (HFT) strategies.
  5. Trading

    Four Big Risks of Algorithmic High-Frequency Trading

    Algorithmic HFT has a number of risks, and it also can amplify systemic risk because of its propensity to intensify market volatility.
  6. Investing

    NYSE Trading Speed Bump to Counter Flash Boys

    NYSE implements "speed bump" for trading in effort to stymie HFT and win new business.
  7. Investing

    High-Frequency Trading Regulations (ETFC)

    Current regulations on high-frequency trading, and possible future ones. How some people think high-frequency trading should be regulated or illegal.
  8. Insights

    If You Buy Stocks Online, You Are Involved in HFTs

    Many people don't realise that some half to two-thirds of all trades use high-frequency trading in some fashion.
  9. Financial Advisor

    Asset Manager Ethics: Placing and Managing Trades

    Five guidelines have been created to assist asset managers on the best practices for placing and managing trades in client accounts.
RELATED FAQS
  1. What's the difference between binary options and day trading?

    Binary options and day trading are both ways to make (or lose) money in the financial markets, but they are different animals. ... Read Answer >>
  2. Where can I find historical stock/index quotes?

    Finding historical quotes on stocks and indices online has never been easier. Use Investopedia's historical data tool for ... Read Answer >>
  3. How do I place an order to buy or sell shares?

    Read a brief overview of how to open a brokerage account, how to buy and sell stock, and the different kinds of trade orders ... Read Answer >>
Trading Center