In automated trading systems, a kill switch is a system feature and/or procedure that can immediately halt and/or disconnect the output of a trading system. Synonymous with kill button.
MIT researchers worked out the physical locations to minimize network latency between a trading system (the small blue dots) and principal exchanges (the big red dots). The graphic is also a good visualization of the extent and integration of global financial markets.
Here’s a definition recently discussed by the CFTC. High Frequency Trading (HFT) is a form of automated trading that employs:
a) algorithms for decision-making, order initiation, generation, routing or execution;
b) low latency technology that is designed to minimize response times, including proximity or co-location services;
c) high speed connections to markets or order entry;
d) recurring high message rates (orders, quotes or cancellations), using one or more forms of objective measurement, including cancel-to-fill ratios, participant-to-market message ratios, participant-to-market trade volume ratios.
The definition of automated trading (AT) is much discussed. For the purposes of AT 9000, the defining characteristic of an AT system is neither the duration of its trades nor the volume of its order requests routed to the exchange, but rather the risks a given system poses to the marketplace. Any automated or algorithmic trading system that enters computer-generated order requests into the market gives rise to immediate risks in the event of its strategic or technological failure. Such systems, broadly defined, may engage in market making, index arbitrage, statistical arbitrage, or any number of other strategies that provide liquidity by way of automated decision-making. This definition also intends to include automated systems that take liquidity as well.