Main Advantages and Disadvantages of HFT Trading

Technological advances, the introduction of advanced computer programs, and the increased use of smart devices have had a profound impact on financial markets. It is no longer enough to have real-time data, now some of the human decisions have been replaced by very complex algorithms and programs. This is the case with so-called high-frequency trading (HFT). Since its introduction just under a decade ago, high-frequency trading (HFT) has gained as many followers as it has detractors. Therefore, in this article we will study this direction in more detail and find out what impact this development has had on the markets.

What is High Frequency Trading?

Execution of investment techniques based on computer programs or opportunity capture algorithms is referred to as frequency. They may be small or exist for a very short period of time.

These investment strategies are used by hedge funds, investment banks and brokers. Some of its main characteristics are that it carries out large volumes of negotiations or transactions, in which the benefits from each transaction are rather low. The operations performed remain in effect for very short periods of time, and we are talking about milliseconds. To make things simpler to understand, let’s use an example. A stock is purchased on a computer through High Frequency Trading (HFT) at $25.00 and immediately sold at $25.0001. Imagine doing this thousands of times per second. Therefore, the benefit that you can get is really significant.

Every day more and more people apply for HFT system development. It is the process of creating software that simplifies and helps to perform high-frequency trading in the financial markets. With the help of such developments, you can automate the process and instantly execute a large number of transactions. Therefore, if you want to know more about such developments, then click here.

Benefits of HFT

The main feature of such systems is that they are developed using modern technologies and algorithms, thanks to which you can identify trading opportunities and automatically execute a trade. Usually, powerful computers are used for such systems, where there is a very small chance to suffer from network delays and other interruptions. In this way, you can gain a competitive advantage in speed and efficiency.

For professionals, one of the main benefits of high-frequency trading (HFT) is the liquidity it provides to the markets.

In fact, the New York Stock Exchange (NYSE) has a group of supplemental liquidity providers (SPLs) that offer incentives that can be reflected in a commission fee or price cut. However, given the millions of transactions generated by High Frequency Trading (HFT), we are talking about important numbers.

Disadvantages of HFT

High Frequency Trading (HFT) is under constant surveillance because the way millions of transactions are carried out in a short period of time serves to manipulate the markets. Market regulators and even the FBI have identified fraudulent transactions that triggered thousands of false purchase orders. HFTs are known to work at such a speed that they manage to block purchases made through traditional systems.

Currently, operations carried out using the High Frequency Trading (HFT) strategy account for more than half of the volume. For now, high frequency trading (HFT) is a reality and many hope that the future crisis in the markets will be more merciful and not be handled at lightning speed thanks to these strategies.

The development of an HFT system is a complex and high-tech process that requires a deep understanding of financial markets, algorithmic programming and a high performance infrastructure. It is carried out by specialized teams of developers, engineers and traders with the aim of creating an automated trading system capable of responding efficiently and quickly to changes in market conditions. However, it is worth it, because with the right approach, you can get a huge number of benefits, and most importantly, income.

Before moving on to development, pay special attention to the selection of specialists. These should be professionals in their field who are well versed in information technology, as well as trading in the markets. Study their portfolio and skills, and only then move on to cooperation. Thus, you can find good specialists who will help make any project a reality.