A perfect guide to high-frequency trading strategy
Many of you who have done researches on the trading market have heard about high-frequency trading. Even though it is lesser-known to the mass population, some people have made their way to the limelight by using some secretive methods. Since it is one of the largest financial industry in the run today, there is no way to look down on it. To develop a sophisticated portfolio, high-frequency trading or simply HFT can play a huge role.
However, the number of people who are not aware of HFT are many. So, for their sake, let’s first have a look at what high-frequency trading is.
It is a trading sector where the fastest trade executors gain more profits than the comparatively slower executors. Here a high defined computer is used to complete a big transaction within seconds. So, the concept of speed is the most crucial when it comes to high-frequency trading.
Now many of you may ask if this trading is good or not.
Well, this trading is profitable and that’s why people are inclined to it. However, since it doesn’t have a good market impression, it is not exactly the best options for retail investors and can even be detrimental to them. Those who frequently remain engage in this trading enjoy an average of $1.92 per trade with institutional traders and $3.5 with retail investors.
Now the main keys to surviving in this trading are to possess secrecy and speed. Here, traders buy and sell stocks within a matter of second. That means if a trader bought stock right now, he would sell his stocks in the next moment. That’s why the most important thing that the HFT firms come up with is multiple strategies to trade. again, it is very important to have reliable market information to transact accordingly. Since this market profit completely depends on how fast a trader is, the firms often use their capital to transact instead of using the capital of the clients.
How to make money in HFT?
Making money in this sector can be a bit complex. Unless you think you are smart and fast enough to pull off, you shouldn’t be reaching for this trading. An investor must need to come up with decisions within moments. Even a single second is vital here. so, if you are a slow thinker, this trading is not exactly for you. Explore the INS and OUT of the market, if you truly believe, HFT trading method is the perfect trading system for your trading career.
At trading business, the main investors are financial firms ranging from small to big. Since the risk here is pretty evitable, this is often not the best individual game. In this market, the firms make transactions from both sides. That means, they buy and sell at the same time. Here the buying price is a bit lower and selling price remains a bit higher. However, this small profit margin is what they look for. Here the main motive is to not make a big profit but to make the fastest transactions. Since trade is executed within seconds, several trades can be done within a single day. Thus the petty profit level gets increased and takes the shape of a bigger profit.
For this trading, investors usually use lower time frames to know the price ranges within a short time. Since the trading takes place within seconds, the investors don’t usually need to monitor the market in the long run and mainly considers the rate of profit they make. The profit is the difference between the selling price and buying price. So, even if the market follows an uptrend, s long s the selling price is higher, the trade is profitable.
Another important part of this trading is to maintain liquidity of the market and this is an important source of income for the firms involved in HFT. Several algorithms are used in this trading. So having basic mathematical skills is a must for the participants.
Even though this trading is a bit secretive, investors are still trying to make a name for themselves by coming out of this trait. So, this trading can only go upward if it is ready to face the challenges that come in their way.