In the last four decades technological progress led to an electrification of stock tra ding
systems. It was realized that the profitability of trading strategies could be increased by
employing computer algorithms to trade autonomously. This led to the implementation of High
Frequency Trading (HFT). Theoretically HFT should increase efficiency in financial markets but
it seems that at least under certain circumstances it causes market instability. The aim of
this paper is to discuss the effect of HFT on market quality and why HFT cannot be fully
explained by the neoclassical theory of economics. Therefore the controversial positions in
literature will be presented and discussed. It is especially referred to the influence of HFT
on liquidity price discovery and volatility. Primarily its negative effect on volatility
seems to contravene the modern finance. Furthermore in the course of this work it will be
illustrated that by employing strict regulation of financial markets this negative impact
cannot be reduced to a suf ficient extent in order for HFT to be characterized as market
optimizing accor ding to the neoclassical theory of economics.
