High frequency trading is a program trading platform that uses powerful computers to transact a large number of orders at very fast speeds. It is considered a primary form of algorithmic trading in finance. High-frequency trading uses complex algorithms to analyze multiple markets and execute orders based on market conditions.
It is estimated that as of 2009, HFT accounted for 60-73% of all US equity trading volume, with that number falling to approximately 50% in 2012.
High frequency traders try to profit from the price movements caused by large institutional trades. When a mutual fund sells a million shares of a stock, the price declines - and HFTs buy on the dip, hoping to be able to sell the shares a few minutes later at the normal price.
When a pension fund buys two million shares, the HFTs short-sell the stock, hoping to close their position at a profit. (Short selling is selling stock you don’t own; you borrow the shares from a stockbroker, sell them, and then later buy the stock to return the borrowed shares.)
Thus, HFTs are buying when the price is below trend and selling when the price is above trend. This tends to trim the price swings.