Best High Frequency Trading Strategies That Work in the Crypto Market
High Frequency Trading (HFT) is a purely electronic form of trading that executes trades at extremely high speeds at a volume weighted average price. HFT platforms have the ability to automatically open and close multiple positions within seconds. The market favors traders with faster execution speeds which allow automated trading than those with slower execution speeds. The goal is to take advantage of emerging market trends before anyone else. The adoption of HFT Trading in the Crypto space was inevitable. It started out with major investors first, but it has spread to individual traders.
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Isn’t it frustrating to keep making huge losses when everyone seems to be doing a slaughter with cryptocurrency?
Since its inception and especially this year, cryptocurrency has given birth to a new generation of millionaires. I’m talking about people who slept with crypto investments worth a few thousand and woke up with returns worth millions.
While most of these people are long-term investors, few are consistent and strategic short-term traders. You are probably reading this because you want to be the next crypto millionaire and can use all the strategies available. High frequency trading could be exactly what you are looking for.
High frequency trading is one of those investment trading strategies that promises an edge over others. In the next reading, you will understand the ins and outs of high frequency trading as well as some of the best strategies for maximizing your returns.
Understanding High Frequency (HFT) Crypto Trading
This type of trading is most common among institutional investors called high frequency trading firms.
High frequency trading platforms depend on data access and lightning fast speed of computer software.
If you are completely new to crypto, it is best to stick to manual trading first and learn the game’s tips. Start with simple crypto day trading, then work your way up to high frequency trading.
As the name suggests, High frequency trading it’s all about speed. Using various trading algorithms, it is a purely electronic form of trading that executes trades at extremely high speeds at a volume weighted average price. The trader uses these algorithms to maximize the opportunities that the naked eye would typically miss.
An algorithm is simply a powerful computer program that processes many commands in a fraction of a second.
High-Frequency Trading algorithms simultaneously analyze multiple exchanges, thus identifying the smallest price changes and gaps between similar assets on multiple exchanges. HFT platforms also have the ability to automatically open and close multiple positions within seconds.
For years, high frequency trading was limited to traditional markets like forex and stocks. However, due to its impressive characteristics, it has been able to gain traction in the crypto space over time.
HFT allows high frequency traders to make multiple trades per second which is the main reason for its growing popularity in the crypto sphere. Typically, the market favors traders with faster execution speeds that allow automated trading than those with slower execution speeds.
Features of high frequency trading
Its algorithms make predefined business decisions.
High frequency trading is common among institutional investors and market makers.
It is best suited for experienced traders with a comprehensive understanding of the market.
This uses real-time data feed via API integrations to automate the trading process.
It involves automated trading, which means that the algorithms go directly to the market and do not require human intervention.
High-speed order execution, High frequency trading is characterized by a higher number of orders, a high volume of stock trading and quick order cancellations. High frequency trading is characterized by low latency execution.
How does high frequency trading work?
As you might expect, there is a lot of automation involved in high frequency trading. Therefore, understanding how high frequency trading works is more about how computers are programmed to perform these trades.
As already explained, an algorithm is simply a powerful computer program that processes many commands in a fraction of a second. The computer that performs the high frequency trading is programmed to host sophisticated algorithms to perform instant analysis of cryptocurrencies on multiple exchanges or trading platforms.
Said algorithms are designed by trading professionals to detect trends and other trading triggers that may not be obvious to the naked eye. Based on their instant scans, the programs automatically open multiple positions within a fraction of a second. The goal is to take advantage of emerging market trends before anyone else.
High frequency crypto trading
The adoption of high frequency trading in the crypto space was inevitable. It first started with major institutional investors, but lately it has spread to individual traders. With all of the different crypto trading robots available to individual and collective investors, HFT strategies in the crypto world are exceptional.
While high frequency trading is relevant for cryptocurrency trading, it is not for everyone. The crypto market is extremely volatile and risky; therefore, high frequency trading is best suited for experienced traders.
Before deciding if high frequency trading is right for you, you should understand the pros and cons involved.
Benefits of high frequency trading strategy
Liquidity – It is an incredible way to add value to market liquidity, resulting in the overall stability of the financial sector.
Low volatility – High frequency trading could potentially protect the stock market from too much volatility by reducing the bid-ask spread and stable prices.
Automation and high transaction speeds – thanks to the sophisticated infrastructure, High-Frequency Trading maximizes small spreads and incentives.
Elimination of errors – High frequency trading uses complex mathematical processes to analyze the market, thus eliminating human errors caused by emotions and fear.
Disadvantages of high frequency trading strategy
Uninformed financial decisions – Large block transactions are completed in milliseconds without much thought.
More profitable for experts and institutional investors – Novice retail traders will never benefit from high frequency trading as much as experienced high frequency traders will.
High risk – Compared to traditional trading, high frequency trading is more prone to risk. Retail traders are always prone to loss and profit margins can be quite low.
Technical snags – High frequency traders often run into faulty algorithms and even issues when dealing with a particular stock.
Illegal logging – Scams and manipulative high frequency trading algorithms that can influence the market and harm retail investors are quite common which is not only immoral but also illegal.
The most remarkable High frequency trading SStrategies (HFT Strategies) for the Cryptocurrency Market
It is essential to note that the high frequency trading strategy is not limited to the following list.
There are many other diverse trading strategies that apply to both traditional trading and high frequency trading. You should understand that high frequency trading and its related aspects are not trading strategies per se but rather a path to trading strategies.
Here are some popular trading strategies that could revolutionize your high frequency trading experience in the financial markets.
Market making is one of the most proven high frequency trading strategies. Essentially, this is the constant and simultaneous listing of buy and sell orders.
Market making is a financial instrument that not only drives market liquidity but is also very beneficial for the high frequency traders involved.
Traditionally, large corporations or high frequency trading companies provide market makers, which is considered a positive practice in financial markets.
This is the practice of speculating on the difference in price of the same cryptocurrency between different exchanges. The first trader to notice these discrepancies usually uses this information to their maximum advantage.
Of course, you need robust and fast trading computers with updated high-frequency trading software to practice statistical arbitrage. It has the overall effect of balancing the market by balancing prices.
Intelligent order routing
High-frequency traders can simultaneously access liquidity pools, identify the best order routing destination, and optimize order execution. A predefined or real-time market is scanned to give the best offer and offer quotes for a specific order, thus obtaining the best price.
Maximize short-term opportunities
People generally refer to maximizing short term opportunities as scalping on steroids. High frequency trading uses powerful computers with the processing capability for fast algorithmic trading to secure multiple orders in a fraction of a second.
Maximize the volume of trade
With high frequency trading, also known as high speed trading, traders are leveraging automation to their advantage. Not only are these high frequency traders able to perform large trading volumes, but they also profit greatly from the smallest price fluctuations.
Although widely used by institutional investors, high frequency crypto trading is accessible to everyone, including different market participants. There are several advanced high frequency trading algorithms that anyone can access at great prices. However, market players need to do their due diligence to ensure that the algorithm is legitimate and effective.
If you too are considering participating as a high frequency trader on the New York Stock Exchange or other financial markets, be sure to play your cards right. After all, high frequency trading can be a tremendous opportunity instead of the investment vortex that most people think it is.