High Frequency Trading (HFT) involves the concept of “Order Types”, which signals a trader to enter or exit a position. According to Reuters, Order types can reach an estimated 2,000 variations as a fully electronic market and more than 50 trading venues have multiplied the possibilities of how, when and with whom to trade. Clearly, the rules of the game is redefined by the Order Types and their correct implementation in the marketplace. Amidst a long list, we touch upon some of the popular ones, frequently used by HFT practitioners. The following Infographic shows 4 HFT Order Types, and examples when a buy or sell order is placed.

1. 1. Market orders
2. Poke for Bargains
4HFTOrder
TypesYouNeedToKnow
Order Types
$10 $11
Market is
500|10X11|500. Trader
submits order to
buy 250 shares. Market
becomes 500|10X11|250
Tradeordersareexecutedat
currentbidoraskprice
Tradersenduppayingmarket
spread.
­250
­250
+250
+250
BUY order for
250 shares
$10 $11
­300
­200
+250
+250
BUYorderfor200sharesat
$10.90byTraderAand
acceptancebyTraderB
$10.90
Market is
500|10X11|500. Trader A
submits order to buy 200
shares at $10.90. Trader B
sees the order and accepts it.
The matching is done at the
exchange level.
Tradersdonotpaythemarket
spread,buttriestopokeatbargains
lesserthantheaskprice.
3. Join the Makers
$10 $11
­250
­250
+250
+250
BUYorderfor100sharesfrom
TraderAat$10. SELLorderfor
300sharesfromTraderB
Market is
500|10X11|500. Trader A
submits order to
buy 100 shares at $10. Trader
B sells 300 shares at the
same price. The matching is
done at the exchange
level. The Market becomes
300|10X11|500
Marketmakersprofitthebidask
spreadbybuyingatbestbidand
sellingatthebestask.
4. Reserve Orders
$10 $12
­300
­600
+300
+400
Market is 700|9 500 10X11|500 12|900. For reserve orders, the $10 bid is not just for
500 shares but also for 400 shares in reserve. A market order to sell, say, 700
shares will fill entirely with the $10.00 price. Were there no bids in reserve, the
market order would fill 500 with a price of $10.00 and 200 with a price of $9.
$9 $11
­200
­300+200
+300
If you are a High Frequency Trader, you would swear by the
Order book. They display the best bid & ask for the traded
entitites. But are you deploying the right order types that
helps you pocket the profitability?
Sources: [1] All about High Frequency Trading, Durbin Michael, 2010 [2] QuantInsti.com/blogs
+100
­300