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.

FOREX ROBOTS: SHOULD YOU INVEST INTO A FOREX ROBOT?

There never is going to be a straightforward answer to this question. Some people will say that there is no point to spend money on technology when you can easily find a free forex robot and set it up for your trading needs. Others would argue that nothing really good comes for free so the more you invest into the software the more prepared you are. Personally, I believe both are equally right. However, for me the second approach works better. Let’s have a look at what forex robots are, how you choose the right one and should it be free or paid.

What is a forex robot?

Forex robot is a software programmed using sophisticated mathematical algorithms that cover all your trading needs. With the help of a robot you can achieve much better results than with your bare hands on the keyboard. A good example would be a scalping robot: a trader can’t physically perform 100+ openings/closings per hour whereas a robot can. Why is it called scalping? Because it fixes minimal positive results and makes a tiny profit on a large number of trades in a very short timeframe. Shaving off, so to say.

Modern day trading is impossible without a proper software. So, a trader needs a forex robot. The question is how to find the right one. Pay attention to the last sentence – the right one, not the best one. Why? Because a robot can actually adjust to your trading strategy and in a way to your personality. The task is to find the right one for you. I would start by carefully analyzing forex robot reviews sites, get acquainted with the types of robots on the market, their functionality, performances, strategies employed and algorithms used.

From my personal experience I deducted that testing and reviewing a forex robot is crucial because it all depends on how the software had been built and who’d built it. It is not enough to be able to code and know mathematics and algorithms. The best forex robots around are those created by the synergy of traders and programmers. So, when choosing one, get an understanding who created it, whether there was any trading experience behind the algorithms. The most successful robots are the fruits grown from experience of a manual trading converted into algorithms.

How to choose forex robot?

The other important issue in choosing a robot would be to look at how much statistical data is available on free resources or social forex sites of a certain robot. The producers, once they are sure of the quality of their product, would be publishing its results and stats everywhere to get traders’ attention. This kind of a robot can be trusted to perform well.

Finally, let’s talk about free and paid robots because there is an issue of investing or not investing into a software. Custom made and algorithmically well-built robots would cost you some money and provided you have done your homework and understand how the particular robot works, you do have good chances of building a winning trading pattern. I can’t say this is impossible with a free robot. However, there will be certain limitations. Try both and see what works for you. Trading is a serious thing and the more prepared you are the better. I prefer investing into software and learning from it rather than losing my deposits.

More on the topic here:

https://en.wikipedia.org/wiki/Automated_trading_system