These day, it seems as if near every firm on Wall Street is getting involved in the activity that has come to be known as high frequency trading. A couple of years ago, it was only the major players like Goldman Sachs and Merrill Lynch who had high frequency trading desks, but now it looks like pretty much all the big guns are getting involved.

Not just the big guns either. Increasingly, smaller broker dealers and proprietary trading firms are setting themselves up as high frequency trading shops, and it looks as if the trend is set to continue.

According to the High Frequency Trading Review, over 400 firms now participate in some form of high frequency trading (HFT). In terms of volume figures, industry estimates put the total share of HFT as between 60% and 80% of total US equity volume, which is hugely significant by any standards.

The question is, have we reached the peak? The answer depends upon who you ask. Some pundits think that HFT has grown as much as it is likely too, others say that there is room for still more growth.

One thing is clear though, and that is that there are still firms jumping on the HFT bandwagon for the first time, hoping to get a piece of the action. If the market is starting to become saturated, those new players will find it increasingly difficult to compete. In fact, it seems that just as quickly as firms are joining the HFT fray, others are leaving or even going out of business.

Competing in the HFT space is tough. In order to be successful, there are all kinds of expensive things you need, not just on the hardware, software and communications front, but also in terms of highly-paid staff, as some of the top brains in the industry work on HFT projects. Smaller prop shops will find it very difficult to compete with the big guns of Wall Street and match their deep pockets.

So in conclusion, our prediction is that high frequency trading will continue to grow for the first half of 2010 and then will top out, particularly as regulators start to become more closely involved. Watch this space!