Why Is Instant Finality Critical for High-Frequency Trading of Financial Derivatives?
Instant finality is critical for HFT because trades must be executed and settled almost instantaneously to capitalize on fleeting price differences (arbitrage). Without instant finality, there is a time gap where a trade could be reversed or invalidated, introducing high counterparty and settlement risk.
This lack of certainty would make the rapid, automated strategies of HFT unviable, as the execution price could change before the transaction is definitively confirmed.
Glossar
Instant Finality
Settlement ⎊ Instant Finality, within decentralized systems, denotes the irreversible confirmation of a transaction, eliminating the probabilistic finality inherent in many consensus mechanisms.
Instant Settlement
Execution ⎊ Instant Settlement, within cryptocurrency and derivatives markets, denotes the near-real-time finality of a transaction, minimizing counterparty risk and operational latency.