High-frequency trading firms, which number over 100, use computers programmed with complex mathematical formulas to comb markets for securities priced too high or too low because traders haven't had to time to react to the latest data. The computers then buy or sell in a split second, locking in a profit.
But those pennies can add up to a lot of money, enough to draw the attention of Goldman Sachs Group Inc., the giant Chicago hedge fund Citadel Investment and other big financial firms. In recent years they've paid hundreds of millions of dollars for stakes in high-frequency trading companies.
To spot opportunities and act on them before others, HFTs are constantly hunting for faster computers. They also locate themselves close to the big exchanges' data centers. That can cut their trade times by milliseconds.