High-Frequency Trading and Latency Arbitrage › Key Parameters
Michael BrenndoerferJanuary 1, 20261 min read
Quantitative FinanceAll chapters Part 12 of 15Market Making and High-Frequency Trading
High-Frequency Trading and Latency Arbitrage › Key ParametersOne section · Sections in this chapter3 / 18 ↓
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The key parameters for HFT strategy simulation are:
- trades_per_day: Number of trades executed daily, with higher values improving statistical consistency through the law of large numbers, as more independent outcomes average together to produce stable daily results.
- profit_per_trade_mean: Expected profit per share per trade. Even tiny values (e.g., $0.003) accumulate significantly at scale when multiplied across thousands of daily trades.
- profit_per_trade_std: Volatility of individual trade profits, with high variance at the trade level becoming low variance at the daily level through aggregation effects.
- shares_per_trade: Position size per trade. Larger sizes amplify both profits and risks proportionally.
- trading_days: Number of trading days per year (typically 252), used to annualize metrics like Sharpe ratio by accounting for the compounding effect across all trading sessions.