{"id":10458,"date":"2025-09-28T09:43:39","date_gmt":"2025-09-28T02:43:39","guid":{"rendered":"https:\/\/eaforexcenter.com\/what-is-hft-and-why-do-many-brokers-ban-hft\/"},"modified":"2026-01-12T14:02:19","modified_gmt":"2026-01-12T07:02:19","slug":"what-is-hft","status":"publish","type":"post","link":"https:\/\/eaforexcenter.com\/en\/what-is-hft\/","title":{"rendered":"What is HFT, and why do many brokers ban HFT?"},"content":{"rendered":"<p>Following our <a href=\"https:\/\/eaforexcenter.com\/ea-challenge-dashboard\/\">EA trading competition<\/a>, where we added a rule prohibiting the use of HFT EAs, many participants wanted to know what HFT is, how it&#8217;s classified, and why it&#8217;s banned. Let&#8217;s go through this from the beginning. (This content is supported by <a href=\"https:\/\/www.mebmarket.com\/web\/index.php?action=BookDetails&amp;data=YToyOntzOjc6InVzZXJfaWQiO3M6NzoiNjQxMzU5MCI7czo3OiJib29rX2lkIjtzOjY6IjI5NTMyNSI7fQ\">EA Writing Guide with fxDreema Volume 1<\/a> and <a href=\"https:\/\/www.mebmarket.com\/web\/index.php?action=BookDetails&amp;data=YToyOntzOjc6InVzZXJfaWQiO3M6NzoiNjQxMzU5MCI7czo3OiJib29rX2lkIjtzOjY6IjMyNTQ3MiI7fQ\">Volume 2<\/a>)<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">\u0e2a\u0e32\u0e23\u0e1a\u0e31\u0e0d \u0e1a\u0e17\u0e04\u0e27\u0e32\u0e21<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #000000;color:#000000\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #000000;color:#000000\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Definition_of_High-Frequency_Trading_HFT\" >Definition of High-Frequency Trading (HFT)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#How_to_Identify_What_Constitutes_HFT\" >How to Identify What Constitutes HFT<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Holding_Period_Position_Holding_Time\" >Holding Period (Position Holding Time)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Order_Volume_Order_Frequency_and_Message_Rates\" >Order Volume (Order Frequency and Message Rates)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Use_of_Technological_Infrastructure_Latency_Colocation\" >Use of Technological Infrastructure (Latency \/ Colocation)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Strategies_Commonly_Used_in_HFT\" >Strategies Commonly Used in HFT<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#The_Difference_Between_HFT_and_Scalping\" >The Difference Between HFT and Scalping<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Holding_Period\" >Holding Period<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Order_Frequency\" >Order Frequency<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Strategy_Types\" >Strategy Types<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Can_HFT_EAs_actually_generate_profits_in_the_real_Forex_market\" >Can HFT EAs actually generate profits in the real Forex market?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#HFT_at_the_Institutional_FX_Level\" >HFT at the Institutional FX Level<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#HFT_in_the_Retail_Forex_Market\" >HFT in the Retail Forex Market<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Scalping_vs_HFT_in_the_Real_Forex_Market\" >Scalping vs HFT in the Real Forex Market<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Why_do_many_retail_Forex_brokers_ban_HFT\" >Why do many retail Forex brokers ban HFT?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Latency_Arbitrage_Issues\" >Latency Arbitrage Issues<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Cost_and_Order_Management_Risks\" >Cost and Order Management Risks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Liquidity_Risk\" >Liquidity Risk<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Incompatibility_with_the_Brokers_Business_Model\" >Incompatibility with the Broker\u2019s Business Model<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#Summary\" >Summary<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/eaforexcenter.com\/en\/what-is-hft\/#%E0%B8%AD%E0%B9%89%E0%B8%B2%E0%B8%87%E0%B8%AD%E0%B8%B4%E0%B8%87\" >\u0e2d\u0e49\u0e32\u0e07\u0e2d\u0e34\u0e07<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Definition_of_High-Frequency_Trading_HFT\"><\/span><span style=\"color: #333399;\"><strong>Definition of High-Frequency Trading (HFT)<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong><a href=\"https:\/\/www.myfxbook.com\/members\/eaforexcenterII\/%E0%B9%80%E0%B8%82%E0%B8%B2%E0%B8%A2%E0%B8%AD%E0%B8%94%E0%B8%94%E0%B8%AD%E0%B8%A2%E0%B9%81%E0%B8%A5%E0%B8%A7%E0%B8%84%E0%B8%AD%E0%B8%A2-tp-%E0%B8%9E%E0%B8%A3%E0%B8%AD%E0%B8%A1%E0%B9%81%E0%B8%95%E0%B8%81%E0%B8%88%E0%B8%B2\/11616532\">High-Frequency Trading (HFT)<\/a> <\/strong>refers to a category of algorithmic trading behaviors that focus on extremely high trading speed and a very large volume of orders. It relies on low-latency technological infrastructure\u2014such as server colocation near the matching engine and order transmission via FIX protocol or high-speed market data feeds\u2014to generate profits from tiny, micro-level price movements within the market\u2019s microstructure.<\/p>\n<p>According to a report by the Markets Committee of the Bank for International Settlements (BIS), HFT in the foreign exchange (FX) market is characterized by small trade sizes <strong>executed in very large numbers<\/strong>, <strong>low profit margins per trade<\/strong>, <strong>millisecond-level processing speeds<\/strong>, <strong>and extremely short risk-holding periods<\/strong> (BIS Markets Committee, 2011).<\/p>\n<p>From a regulatory perspective, <strong>ESMA <\/strong>classifies HFT as a \u201csubset of algorithmic trading,\u201d identifiable through a shared set of characteristics, including <strong>very high order submission rates<\/strong>, <strong>high order cancellation rates<\/strong>, <strong>the use of colocation<\/strong> or <strong>proximity services<\/strong>, <strong>and<\/strong> extremely short holding periods. ESMA also proposes a <em>quantitative <\/em>framework for identifying HFT activity within market data (ESMA, 2014).<\/p>\n<p>Simply put, <strong>\u201cHFT<\/strong> <strong>= high order frequency + low latency + algorithm-driven decision-making + intensive order-submission and cancellation within extremely short timeframes.\u201d<\/strong> It is not the name of a single trading strategy, but rather a <strong>\u201ccluster of behaviors\u201d<\/strong> that can be observed across multiple strategies\u2014such as latency arbitrage, high-frequency market making, or statistical arbitrage operating on timeframes of just a few seconds. This view is consistent with contemporary literature in both policy analysis and financial economics (BIS Markets Committee, 2011; ESMA, 2014).<\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_to_Identify_What_Constitutes_HFT\"><\/span><span style=\"color: #333399;\"><strong>How to Identify What Constitutes HFT<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Determining whether a trading strategy or EA qualifies as HFT should be based on the system\u2019s<strong> behavioral characteristics<\/strong>, rather than the strategy\u2019s name alone. Academic research and financial regulatory publications suggest the following key criteria for identification: <\/p>\n<h3><span class=\"ez-toc-section\" id=\"Holding_Period_Position_Holding_Time\"><\/span>Holding Period (Position Holding Time)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li><strong>HFT characteristic<strong>:<\/strong><\/strong> Positions or orders are held for extremely short durations\u2014ranging from milliseconds to just a few seconds\u2014before being closed.<\/li>\n<li><strong>Reference: <\/strong>BIS (2011) reports that <strong>HFT traders in the FX market typically hold positions for seconds or less<\/strong>, in contrast to conventional trading, where positions may be held for minutes to hours (BIS Markets Committee, 2011).<\/li>\n<li><span style=\"color: #ed1c24;\"><strong>Implication for classification:<\/strong> If an EA closes orders almost immediately\u2014with an average holding time of &lt; 10 seconds\u2014it is likely to be classified as HFT<\/span><\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Order_Volume_Order_Frequency_and_Message_Rates\"><\/span>Order Volume (Order Frequency and Message Rates)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li><strong>HFT characteristic<\/strong><strong>: <\/strong>A very large number of orders are submitted within a short period of time, with order cancellation rates often exceeding 90% of submitted orders.<\/li>\n<li><strong>Reference:<\/strong> ESMA (2014) defines HFT as having <strong>\u201chigh order-to-trade ratios<\/strong>\u201d and <strong>\u201cvery high message rates,\u201d <\/strong>meaning that the number of orders submitted is many times greater than the number of trades actually executed (European Securities and Markets Authority, 2014).<\/li>\n<li><span style=\"color: #ed1c24;\">Implication for classification: If an EA submits orders dozens of times per minute &gt;or more, it should be considered HFT.<\/span><\/li>\n<\/ul>\n<figure id=\"attachment_10454\" aria-describedby=\"caption-attachment-10454\" style=\"width: 960px\" class=\"wp-caption aligncenter\"><img decoding=\"async\" class=\"size-full wp-image-10054\" src=\"https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/1-1.webp\" alt=\"Execution Speed of HFT\" width=\"960\" height=\"1200\" srcset=\"https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/1-1.webp 960w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/1-1-480x600.webp 480w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/1-1-819x1024.webp 819w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/1-1-768x960.webp 768w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/1-1-600x750.webp 600w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><figcaption id=\"caption-attachment-10454\" class=\"wp-caption-text\"><em><strong>Figure 1:<\/strong> Comparison of signal transmission speeds among HFT firms, Investment Banks (IBs), and other firms (European Securities and Markets Authority, 2014).<\/em><\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Use_of_Technological_Infrastructure_Latency_Colocation\"><\/span>Use of Technological Infrastructure (Latency \/ Colocation)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li><strong>HFT characteristic:<\/strong> Relies on <strong>speed advantages<\/strong> <strong>(latency advantages),<\/strong> such as <strong>colocation <\/strong>near exchange servers or the use of FIX APIs to bypass the latency inherent in standard retail trading platforms<\/li>\n<li><strong>Reference: <\/strong>Carver (2014) points out that <strong>retail traders cannot realistically compete with HFT firms because they lack colocation and low-latency infrastructure.<\/strong> Therefore, EAs designed to exploit latency arbitrage at the broker level are considered to fall within the scope of HFT (Carver, 2014).&gt;<\/li>\n<li><span style=\"color: #ed1c24;\"><strong>Implication for classification:<\/strong> If an EA is designed to exploit price discrepancies caused by latency,&gt; it should be classified as HFT.<\/span><\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Strategies_Commonly_Used_in_HFT\"><\/span>Strategies Commonly Used in HFT<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li><strong>Latency Arbitrage:<\/strong> &gt;Uses faster-arriving market data to arbitrage bid\/ask prices or price discrepancies across markets.<\/li>\n<li><strong>High-Frequency Market Making:<\/strong> &gt;Continuously places bid and ask quotes, capturing very small spreads but doing so across a large number of trades.<\/li>\n<li><strong>High-Frequency Statistical Arbitrage<\/strong>: &gt;Exploits very short-term deviations between correlated assets.<\/li>\n<li>According to Chan (2013) in <em>Algorithmic Trading<\/em>,&gt;these strategies cannot be executed at the retail level without ultra-low-latency infrastructure (Chan, 2013).<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_Difference_Between_HFT_and_Scalping\"><\/span><span style=\"color: #333399;\"><strong>The Difference Between HFT and Scalping<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Although <strong>HFT <\/strong>and <strong>scalping <\/strong>are sometimes viewed as \u201cthe same\u201d because both aim to profit from small price movements in the market, from both academic and practical perspectives, the two are <strong>clearly distinct<\/strong> in several key aspects, as outlined below.   <\/p>\n<h3><span class=\"ez-toc-section\" id=\"Holding_Period\"><\/span>Holding Period<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li><strong>HFT<\/strong>: Extremely short holding periods\u2014ranging from<strong> milliseconds to just a few seconds.<\/strong>\n<ul>\n<li>BIS (2011) finds that in the FX market, HFT traders<strong> typically hold positions for only a few seconds or less <\/strong>(BIS Markets Committee, 2011).<\/li>\n<\/ul>\n<\/li>\n<li><strong>Scalping:<\/strong> Longer holding periods, typically tens of seconds to <strong>several minutes<\/strong> (e.g., 1\u201315 minutes).\n<ul>\n<li>Chan (2013) notes that retail scalping strategies on MT4\/MT5 can be profitable even without a latency advantage, because positions are held for minutes rather than seconds (Chan, 2013).<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Order_Frequency\"><\/span>Order Frequency<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li><strong>HFT:<\/strong> Exhibits extremely high order frequency\u2014dozens to hundreds of orders per second\u2014along with high order cancellation or rejection rates.\n<ul>\n<li>ESMA (2014) confirms that HFT exhibits abnormally high <strong>order-to-trade ratios<\/strong> and submits orders at extremely high frequencies (European Securities and Markets Authority, 2014).<\/li>\n<\/ul>\n<\/li>\n<li><strong>Scalping:<\/strong> Operates at a much lower scale, typically <strong>tens to hundreds<\/strong> <strong>of orders per day<\/strong>, depending on the EA\u2019s strategy.\n<ul>\n<li>Davey (2014) provides examples of retail scalping systems that typically execute only 10\u201350 trades per day (Davey, 2014).<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Strategy_Types\"><\/span>Strategy Types<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li><strong>HFT:<\/strong> Latency arbitrage, high-frequency market making, Statistical arbitrage operating at the millisecond level<\/li>\n<li><strong>Scalping:<\/strong> Breakout trading, mean reversion, trend-following intraday<\/li>\n<\/ul>\n<p>In short, the conclusion is as follows: if an EA opens and closes orders <strong>within just a few seconds<\/strong> and <strong>submits a large number of orders<\/strong>, &gt;it should be classified as HFT. Conversely, if an EA opens and closes orders on a minute-level timeframe and executes only tens to hundreds of trades per day, &gt;it should be considered scalping.<\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Can_HFT_EAs_actually_generate_profits_in_the_real_Forex_market\"><\/span><span style=\"color: #333399;\"><strong>Can HFT EAs actually generate profits in the real Forex market?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The use of <strong>HFT EAs <\/strong>in the Forex market has long been a subject of debate. While HFT has proven successful in equity and futures markets, the FX market\u2014particularly the retail Forex segment\u2014faces several structural limitations. <\/p>\n<h3><span class=\"ez-toc-section\" id=\"HFT_at_the_Institutional_FX_Level\"><\/span>HFT at the Institutional FX Level<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>In the <strong>interbank <\/strong>FX market, HFT plays a clearly defined role, particularly on <strong>EBS and Reuters Matching platforms<\/strong>, which serve as the primary trading venues for financial institutions.<\/li>\n<li><strong>The BIS (2011)<\/strong> report states that HFT participants are significant players in the FX spot market and contribute to enhanced <strong>liquidity<\/strong> and tighter spreads under normal market conditions (BIS Markets Committee, 2011).<\/li>\n<li>However, during periods of heightened market volatility, HFT participants<strong> may withdraw<\/strong> from the market, causing liquidity to disappear rapidly, which poses a form of systemic risk.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"HFT_in_the_Retail_Forex_Market\"><\/span>HFT in the Retail Forex Market<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>In the<strong> retail FX market (via MT4\/MT5 brokers)<\/strong>, the use of HFT EAs is generally unable to generate sustainable profits, due to the following reasons:\n<ul>\n<li><strong>Latency:<\/strong> Retail traders do not have access to colocation and must route orders through the broker\u2019s servers&gt;, resulting in a significant speed disadvantage compared to institutional players\u2014simply put, they cannot compete on speed with large institutions.<\/li>\n<li><strong>Execution policy:<\/strong> Most brokers actively detect and <strong>prohibit <\/strong><strong>latency arbitrage<\/strong> or micro-scalping strategies that open and close positions within fractions of a second.<\/li>\n<li><strong>Slippage \u0e41\u0e25\u0e30 Spread widening:<\/strong> Under real market conditions, transaction costs and slippage tend to erase the profits of retail HFT EAs.<\/li>\n<\/ul>\n<\/li>\n<li>Carver (2014) emphasizes that retail traders<strong> cannot compete with institutional-level <strong>HFT<\/strong><\/strong> due to the lack of high-speed infrastructure (Carver, 2014).<\/li>\n<\/ul>\n<figure id=\"attachment_10455\" aria-describedby=\"caption-attachment-10455\" style=\"width: 960px\" class=\"wp-caption aligncenter\"><img decoding=\"async\" class=\"size-full wp-image-10055\" src=\"https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/2-1.webp\" alt=\"The Evolution of Technology and HFT \" width=\"960\" height=\"1200\" srcset=\"https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/2-1.webp 960w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/2-1-480x600.webp 480w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/2-1-819x1024.webp 819w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/2-1-768x960.webp 768w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/2-1-600x750.webp 600w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><figcaption id=\"caption-attachment-10455\" class=\"wp-caption-text\"><em><strong>Figure 2:<\/strong> Illustration of the evolution of FX market structure from the 1990s through the 2000s, helping to explain why new participants\u2014such as HFT firms, hedge funds, and retail traders\u2014have been able to enter the market, thereby intensifying trading competition (BIS Markets Committee, 2011).<\/em><\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Scalping_vs_HFT_in_the_Real_Forex_Market\"><\/span>Scalping vs HFT in the Real Forex Market<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Scalping EAs (with minute-level holding periods) can still be profitable in the retail Forex market if the strategy is properly designed and the broker offers favorable trading conditions.<\/li>\n<li>HFT EAs that attempt to profit from <strong>millisecond-level<\/strong> arbitrage often encounter the following issues\n<ul>\n<li><strong>Requotes<\/strong><\/li>\n<li><strong>Slippage<\/strong><\/li>\n<li><strong>Profit cancellation<\/strong> <strong>by the broker<\/strong> (considered unfair execution).<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_do_many_retail_Forex_brokers_ban_HFT\"><\/span><span style=\"color: #333399;\"><strong>Why do many retail Forex brokers ban HFT?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Although HFT is an integral part of institutional trading and the interbank FX market, many <strong>retail Forex brokers<\/strong> <strong>choose to ban <\/strong><strong>or restrict the use of HFT EAs<\/strong> for the following <strong>reasons<\/strong>.  <\/p>\n<h3><span class=\"ez-toc-section\" id=\"Latency_Arbitrage_Issues\"><\/span>Latency Arbitrage Issues<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li><strong>Most retail HFT EAs <\/strong><strong>focus on latency arbitrage<\/strong>, seeking to exploit price gaps caused by latency between the broker\u2019s data feed and the true market price.<\/li>\n<li>Brokers view this as <strong>\u201cunfair trading\u201d <\/strong>because the profits are derived not from genuine market analysis, but from temporary inefficiencies or instability in the broker\u2019s price quotation system.<\/li>\n<li>ESMA (2014) states that <strong>HFT commonly relies on latency advantages<\/strong>, such as colocation and ultra-fast connectivity, to profit from price discrepancies (European Securities and Markets Authority, 2014).<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Cost_and_Order_Management_Risks\"><\/span>Cost and Order Management Risks<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>When an EA submits a large number of orders per second, the broker\u2019s systems&gt; must handle a <strong>heavy processing load, thereby increasing infrastructure costs.<\/strong><\/li>\n<li><strong>A very high order<\/strong> cancellation rate can disrupt the broker\u2019s liquidity balance (BIS Markets Committee, 2011).<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Liquidity_Risk\"><\/span>Liquidity Risk<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>During periods of market volatility, HFT EAs<strong> often withdraw their orders immediately&gt;<\/strong>, forcing the broker to absorb the resulting price exposure (market risk).<\/li>\n<li>This observation aligns with BIS (2011), which notes that HFT can enhance liquidity under normal market conditions, but that liquidity can disappear abruptly during periods of volatility (BIS Markets Committee, 2011).<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Incompatibility_with_the_Brokers_Business_Model\"><\/span>Incompatibility with the Broker\u2019s Business Model<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Pure <strong>market maker <\/strong>brokers are at a significant disadvantage when facing HFT EAs that exploit latency&gt;, because the broker acts as the direct counterparty to those trades.<\/li>\n<li>Even under ECN\/STP models, some brokers still prohibit HFT due to <strong>slippage issues, toxic order flow,<\/strong> and complaints or dissatisfaction from liquidity providers.<\/li>\n<\/ul>\n<figure id=\"attachment_10456\" aria-describedby=\"caption-attachment-10456\" style=\"width: 960px\" class=\"wp-caption aligncenter\"><img decoding=\"async\" class=\"size-full wp-image-10056\" src=\"https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/3-1.webp\" alt=\"HFT EAs taught in premium courses\" width=\"960\" height=\"1200\" srcset=\"https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/3-1.webp 960w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/3-1-480x600.webp 480w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/3-1-819x1024.webp 819w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/3-1-768x960.webp 768w, https:\/\/eaforexcenter.com\/wp-content\/uploads\/2025\/09\/3-1-600x750.webp 600w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><figcaption id=\"caption-attachment-10456\" class=\"wp-caption-text\"><em><strong>Figure 3:<\/strong> An example of an HFT EA operating in the Forex market, running on an Exness cent account. This EA can be considered reasonably profitable overall. Although there are certain periods with relatively high drawdowns, it is still regarded as usable in practice. Anyone interested in learning the techniques behind this system will need to join <a href=\"https:\/\/eaforexcenter.com\/basic-ea-i-east-blue-sea\/\">our premium course<\/a>.<\/em><\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Summary\"><\/span><span style=\"color: #333399;\"><strong>Summary<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>High-Frequency Trading (HFT) is a form of algorithmic trading that emphasizes extremely high execution speed and the submission of a massive number of orders, with holding periods of only a few seconds or less. This differs from scalping, which\u2014although also a short-term trading approach\u2014typically holds positions for minutes and can be viable at the retail level.<\/p>\n<p>Research by BIS and ESMA clearly indicates that HFT is identified by <strong>extremely <\/strong><strong>short holding periods<\/strong>, <strong>high order frequency<\/strong>, <strong>high <\/strong><strong>order cancellation rates<\/strong>,<strong> and the use of latency advantages.<\/strong><\/p>\n<p>Although HFT can generate real profits in institutional-level <strong>FX markets<\/strong>, it is nearly impossible in the <strong>retail market due to structural limitations, speed constraints, and broker-level order management restrictions.<\/strong><\/p>\n<p>For these reasons, most Forex brokers choose to ban HFT EAs, as they are viewed as system-exploiting strategies rather than genuine trading, and as a measure to protect market liquidity stability.<\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"%E0%B8%AD%E0%B9%89%E0%B8%B2%E0%B8%87%E0%B8%AD%E0%B8%B4%E0%B8%87\"><\/span><span style=\"color: #333399;\"><strong>\u0e2d\u0e49\u0e32\u0e07\u0e2d\u0e34\u0e07<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li>BIS Markets Committee. (2011).  <em>High-frequency trading in the foreign exchange market.<\/em> Bank for International Settlements. <a href=\"https:\/\/www.bis.org\/publ\/mktc05.pdf\">https:\/\/www.bis.org\/publ\/mktc05.pdf<\/a><\/li>\n<li>European Securities and Markets Authority. (2014).  <em>High-frequency trading activity in EU equity markets (ESMA Economic Report No. 1).<\/em> <a href=\"https:\/\/www.esma.europa.eu\/sites\/default\/files\/library\/2015\/11\/esma20141_-_hft_activity_in_eu_equity_markets.pdf\">https:\/\/www.esma.europa.eu\/sites\/default\/files\/library\/2015\/11\/esma20141_-_hft_activity_in_eu_equity_markets.pdf<\/a><\/li>\n<li>Carver, R. (2014). <em>Leveraged Trading: A professional approach to trading FX, stocks on margin, CFDs, spread bets and futures for all traders.<\/em> Harriman House.<\/li>\n<li>Chan, E. P. (2013). <em>Algorithmic Trading: Winning Strategies and Their Rationale.<\/em> John Wiley &amp; Sons.<\/li>\n<li>Davey, K. J. (2014). <em>Building Winning Algorithmic Trading Systems: A Trader\u2019s Journey from Data Mining to Monte Carlo Simulation to Live Trading.<\/em> John Wiley &amp; Sons.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Following our EA trading competition, where we added a rule prohibiting the use of HFT EAs, many participants wanted to know what HFT is, how it&#8217;s classified, and why it&#8217;s banned. Let&#8217;s go through this from the beginning. (This content is supported by EA Writing Guide with fxDreema Volume 1 and Volume 2) Definition of [&#8230;]\n","protected":false},"author":6,"featured_media":10457,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[148],"tags":[],"class_list":["post-10458","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ea-knowledge-base"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.6 (Yoast SEO v27.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>What is HFT, and why do many brokers ban HFT? - EaForexCenter<\/title>\n<meta name=\"description\" content=\"Many people wonder what HFT EAs really are, why some brokers ban them, and whether HFT can actually generate profits. 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