Definition
The term flash trading refers to the practice of using high-speed computers, and low latency communication lines, to view orders before they reach the general marketplace. As is the case with high-frequency trading, flash trading is limited to those institutions with direct feeds to an exchange.
Explanation
The ability to engage in flash trading is limited to large institutional investors, hedge funds, and investment banks. These traders use sophisticated computer hardware and software algorithms to deliver a large number of orders at a very high speed to an exchange. The ability to analyze market conditions, and execute orders at these speeds, provides the users of these systems with a trading advantage in the marketplace.
Also known as flash orders, flash trading involves submitting and cancelling a large number of small orders to find larger orders the trader is able to buy or sell before the order even reaches the market. This practice can occur in dark pools, where there is less transparency with respect to the bid and ask prices of securities. High speed computers are not only used to flood the market with orders, but also predict potential price trends.
Related Terms
The term high-frequency trading refers to computerized platforms with the capacity to execute a large number of transactions in a relatively short timeframe. High-frequency trading is limited to those institutions with direct feed lines to an exchange.
Moneyzine EditorJanuary 19th, 2024- The term super display book refers to a computerized system used by the NYSE to display, record, and execute orders for securities. The super display book routes orders directly to the correct specialist for immediate execution.Moneyzine EditorSeptember 21st, 2023
The term mixed lot refers to an order that contains a combination of both round and odd lot orders. A mixed lot for stock is any order that is greater than 100 shares, but not a multiple of 100 shares.Moneyzine EditorFebruary 8th, 2024
The term designated order turnaround system refers to a computerized network that routes instructions to exchange specialists, thereby bypassing brokers. The designated order turnaround system quickly executes orders to both buy and sell relatively large baskets of stock.Moneyzine EditorJanuary 16th, 2024
The term automated order system refers to a computerized network that transmits instructions to the designated order turnaround system or to floor brokers working on the exchange. The automated order system routes the trader's instructions so they can be quickly executed.Moneyzine EditorSeptember 18th, 2023- The term statistical arbitrage refers to the practice of using sophisticated mathematical models to identify potential profit opportunities from a pricing inefficiency that exists between two or more securities. Statistical arbitrage requires the use of high speed computers, computational models, as well as complex trading systems.Moneyzine EditorSeptember 21st, 2023
- The term quantitative trading refers to the practice of using sophisticated mathematical models to identify opportunities to buy and sell securities. While quantitative trading is oftentimes associated with large financial institutions, the approach is also used by individual investors.Moneyzine EditorSeptember 21st, 2023
The term market arbitrage refers to the practice of selling a security in one market and buying it in another. Market arbitrage is possible when the price of the same security is not identical in two different markets.Moneyzine EditorJanuary 24th, 2024
