High-frequency trading (HFT) is the most extreme form of algorithmic trading, where trades are executed in microseconds. It’s a world of incredible speed, complexity, and controversy. I’m breaking down the pros and cons of HFT and its impact on the market.
The Framework That Actually Works
Here is a simple framework for evaluating high-frequency trading. It's not complicated, but it requires discipline.
Step 1: the data tells a different story than your gut
This is where most people go wrong. They skip this step entirely and jump straight to execution. Don't do that.
Step 2: your team matters more than your technology
Once you have the foundation right, this becomes much easier. I've watched founders struggle with this for months when the answer was staring them in the face.
Step 3: Iterate relentlessly
Nothing works perfectly the first time. The companies that get high-frequency trading right treat it as an ongoing process, not a one-time project.
The Reality Nobody Talks About
A lot of the advice on high-frequency trading rests on assumptions that made sense five years ago. The world has moved on.
The first thing to understand is that timing is everything in this game. I've seen this play out across dozens of companies. The pattern is unmistakable.
Many teams spend months on the wrong path before realizing that you should focus on one thing and do it exceptionally well. Once they make the switch, everything changes.
The Numbers Don't Lie
Investing early in high-frequency trading can be the difference between raising your next round and running out of runway.
One of my portfolio companies went from struggling to profitable in under a year after they finally got serious about this. The founder told me later that they wished they'd started sooner.
This connects to broader themes around AI trading, robo-advisors, algorithmic trading, AI fraud detection that I've been thinking about a lot lately.
Final Thoughts
There are no shortcuts in high-frequency trading, but there are smarter paths.
The strongest teams treat high-frequency trading as a competitive advantage, not a checkbox. They invest in it early, measure it obsessively, and never stop improving.
If you're just getting started with high-frequency trading, don't be intimidated. Everyone starts somewhere. The key is to start with the right mindset and the right framework, and then execute like your company depends on it. Because it probably does.
Frequently Asked Questions
Q:What experience informs this perspective?
This perspective comes from over a decade of building companies in Silicon Valley, two successful exits (RemoteTeam to Gusto, MovieLaLa to Gfycat), and investing in 234 startups including Anthropic, OpenAI, and Scale AI. I write about what I've lived.
Q:What's the most common pushback you get on this?
People often push back by citing exceptions or edge cases. And they're usually right that exceptions exist. But building a strategy around exceptions rather than patterns is a losing game for most founders.
Q:Do all experts agree with this view?
No, and that's fine. The best ideas in business are often contrarian. I share my perspective based on my experience and data, but I encourage you to seek out opposing viewpoints and form your own conclusions.