Microtrading

Microtrading refers to the practice of executing a large number of small, rapid trades, typically measured in fractions of a second, to profit from tiny price movements and to provide liquidity. It is primarily associated with electronic markets and algorithmic trading.

Market participants include banks, hedge funds, and specialized proprietary trading firms that deploy automated strategies and high-speed connectivity to exchanges. Microtrading relies on fast data feeds, smart order routing, and colocated servers to minimize latency, enabling microsecond or millisecond trades across equities, futures, currencies, and increasingly in crypto venues.

The aim is to earn small on each trade while maintaining high turnover; traders may engage in market making, liquidity provision, arbitrage, or scalping strategies. Benefits can include tighter bid-ask spreads and deeper liquidity, but costs such as transaction fees and adverse selection risk must be managed.

Critics worry that microtrading can amplify short-lived volatility, contribute to order flow fragmentation, and create systemic risks during stressed periods. Regulators scrutinize practices such as latency arms races, order anticipation, and potential manipulation; rules focus on fair access and best execution.

Microtrading has grown with electronic exchanges since the 1990s and 2000s as bandwidth and processing power increased. While most common in traditional financial markets, similar micro-trading concepts operate in cryptocurrency venues, where liquidity can be more fragmented and riskier.

See also: high-frequency trading, algorithmic trading, market microstructure, liquidity provision.