HIGH FREQUENCY TRADING

Over the last years the world is gaining speed in almost every aspect of its life. Humans are automating everything they can to get things done faster, achieve more and work less. Or it is probably just seems so. In reality, we work harder because we need to constantly learn and adjust to a changing techno environment.

The forex market is among the leading industries to employ tech and thrive on this. Let’s take high frequency trading. A pure and straight forward example of achieving new horizons with the technology employed. What’s HFT? It is a high frequency trading method that allows to open/close trades at a super high speed, in other words it buys and sells forex instruments very fast. These operations are only possible because of forex robots. I have already covered the topic of a robot and how to choose a forex robot. See the details here: http://forexrobotsreview.us/2017/02/16/forex-robots-should-you-invest-into-a-forex-robot/

FIX API trader can trade directly at the interbank level avoiding the unnecessary delays from broker servers and very often gain on the absence of such delay. I mean here that technology is constantly developing to give the market sufficient weapon to lose les and win more.

The trading is carried out by forex robots that are able to analyze the data super-fast and make a decision whether to open a short or a long position therefore creating advantage with fixing the position at a FIX API protocol that is widely used by forex market.

What is the principle of an HFT?

The market volatility is always increased at certain points – stock exchange opening, expected news releases, monetary policies change of Central Bank, etc. These are key moments for high frequency trading. Due to a bigger spread, volatility of quotes and arbitrage situations the forex robots fix micro results on a huge number of trades creating positive outcome.

Let’s have a look what kind of high frequency trading can a trader employ.

Wikipedia outlines 4 basic types of HFT but I believe the best one for a trader would be Arbitrage trading.

Arbitrage trading – a strategy based on a difference in quotes that appears due to a certain time or speed lapse for a particular asset. This type of trading can be either FIX API Latency Arbitrage or FIX API 2-LEG ARBITRAGE. What’s the difference between these two? In the first case, a robot finds a difference for the same asset between two different brokers and opens a position with a slower broker, thus – Latency Arbitrage. In the second case a forex robot buys an asset from broker 1 and sells it with broker 2. Because the speed of a trade is measured in milliseconds, a robot can open and close many trades within a very short period and can fix positive results.

A good example would be buying and selling shares on stock exchange. Say a share is USD100 and the derivate on the share is USD100.01. A forex robot can buy and sell this within seconds and make this 1 cent on a share. But what if it is 1000 shares with hundreds of trades per day.

Latency Arbitrage is a very interesting tool and in my next article I would like to talk about how to choose the right Latency Arbitrage software.

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