High frequency trading on the financial markets can be an exhilarating ride but it can also be a rather expensive ride if you either do not have a plan or if your plan is very poor. When it comes to high frequency trading you need to have the right mindset because it can be one of the most profitable yet stressful forms of trading on the markets. You are likely going to have fair amount of losses but it is made up for by an even greater amount of wins.
What is High Frequency Trading?
Typically, high frequency trading is done by very powerful high speed computers that execute trades by transmitting millions of orders at lightning speed with the ability of making millions of dollars in just a few milliseconds. In fact, some of the high frequency trading algorithms used by the top high frequency traders enable them to literally look into a crystal ball just before making a trade to find out where a stock is going before they place their order and crazy thing is that it’s totally legal.
History of High Frequency Trading
In 1998, USA Securities and Exchange Commission authorized electronic exchanges to integrate High Frequency Trading that could execute trades 1000 times faster than humans.
In 2000 High Frequency Trading accounted for fewer than 10% of equity orders.
In 2002, HFT( High Frequency Trading) made up 56% of the equity trades in the US market.
In 2011, ‘Fitnetix’ developed a microchip called “Nano trading technology” that revolutionized high speed trading and boosted HFT to a level where trades could be executed in nanoseconds.
In 2012, HFT made up the largest amount of equity trades. Estimated at 70% of all equity trades were high frequency trades.
In 2013, It is estimated that $600 million worth of assets were traded in just a few milliseconds through the use of HFT, a record which has since been passed with the rapid development of many different high frequency trading systems.
The Different Types of High Frequency Trading Strategies
High speed trading has been taking investment houses by storm, capable of turning over large amounts of capital because of the computerized advantages involved. When High Frequency Trading is done with large investments, the profits can be substantial. There are many variations of high frequency trading strategies that exist and executed by programmed computers using pre-written algorithms. These algorithms are able to factor in may variable market conditions such as trend direction, pair movement and correlation, breakouts and rebounds of support and resistant levels, approach angles as many more. These same algorithms can also incorporate technical indicators such as the MACD, Stochastics and moving averages. Just about any technical indicator can be incorporated into a HFT algorithm and the most advanced traders develop, adapt and use these High Frequency Trading setups to scalp the market taking fast profits.
How People are using High Frequency Trading
HFT has been around for many years now and people are jumping the queue to grab a bite from some of the best high frequency trade orders. In fact, there are so many High Frequency Trading Systems out there that it has created a lot of mixed views about HFT and the debate about the legality of it is likely to continue in the absence of concrete steps taken by the market regulators. With the right regulations in place, there would be much more transparency and less volatility. Ever seen the market behave radically without explanation? Some Big Shot Banker probably just fired up his HFTS ( high frequency trading system) and it can affect a lot of short-term investors as well are professional traders who are participating in the same market. As an individual investor or trader, rather than waiting for the regulators to bring about radical changes with regards to high-frequency trading, learn proper risk management techniques that will protect you when the market goes against you, limiting your exposure and ultimately saving your capital.
How High Frequency Trading affects the Financial Markets
While it’s impossible to say how each and every trade placed affects the financial market or whether or not the trading world has been helped or harmed by high frequency trading, the biggest winners when it comes to trading appear to be institutional investors who are patient traders and the knowledgeable investors who trade individually, both types of investors benefit from the much higher payouts and narrower spreads that exist today. The Biggest losers are the institutional investors who have not adapted their investment and trading strategies to the modern paradigm. The most frequent losers are the gamblers, the risk takers and traders who trade without proper knowledge of the market or without a trading strategy.
Technology Used In High Frequency Trading
High frequency trading is a primary form of algorithmic trading in finance. Specifically, it is the use of sophisticated technological tools (highly configured computers) and computer algorithms to rapidly trade securities. Individual Traders can also be considered high frequency traders if they execute a large volume of trades in a short period of time.
Relation to Binary Options
One of the more advanced strategies you can use while trading binary options is called the high frequency strategy. However, it is not a strategy that I would recommended you focus on if you are a new trader. Once you have more experience, the strategy can work very well and can generate a large amount of profits in a short time. In most cases this strategy is only used by professional traders who use have access to automated trading algorithms and they use these algorithms to execute multiple trades in milliseconds which is just not humanly possible.
To effectively use a high frequency trading strategy you will need to make several quick trades. In binary options, the shortest trade you can make is 30 or 60 seconds trades which are both suitable for the strategy. The strategy is fairly simple – All you will need to do is place a series of trades based on in-depth market analysis and signal identification. Access to the latest information and tools will certainty give you a profitable edge but ultimately your profitability depends on your ability to read the market.
Conclusion- Should Traders be worried?
High frequency Trading is evolving at a rapid rate with the technological advancements of the modern world reaching new levels of growth. In the coming years we can expect high frequency trading to become more and more common and more advanced. Personally, I don’t have any beef with high frequency trading, I do have a few High Frequency Systems in my trading tool box but I prefer to have the final say in all my trades. I use them as more signal/forecast service to identify possible reversals, rebounds and breakouts and for that reason I believe high frequency trading definitely has its benefits.
What do you think about high frequency trading?
Have you experienced it?
Would you consider giving it a look?
Please leave your thoughts and comments below!