All About High Frequency Trading

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All About High Frequency Trading

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Whether you are a beginner or an experienced trader, High Frequency Trading (HFT) inevitably will become a subject of interest. This computerized procedure of ultra-fast trading can allow you to make substantial gains in milliseconds. However, you should not ignore the risks.

High Frequency Trading: Operation and Benefits

Traditional investments are losing some of their attractiveness. Today, stock market transactions are computerized, automated and focused on mathematical data. You do not have to wag the phone or frantically gesticulate in front of your computer to make millions in record time. High Frequency Trading – the King of Financial techniques – relies on algorithms with dizzying speed to detect upward and downward financial movements, infuse them with winning strategies and profit from them. Thus, the THF provides many advantages:

Increased liquidity and better management

  • Increased liquidity and better managed: with High Frequency Trading, orders are increased tenfold. Whatever their type, they will always be bought or sold. In addition, in times of panic, when financial mistakes are made by traders, the algorithms are designed to stop and restart only at the most opportune moments.

Market efficiency

  • Market Efficiency: The high-frequency trader uses algorithms to identify anomalies in the financial world that would elude the most experienced traditional traders. In addition, certain opportunities and quotations are detected only by said algorithms because they only appear for a few milliseconds.

THF: what are the risks?

If the practice of High Frequency Trading brings undeniable advantages, accelerates financial transactions, and multiplies orders a hundred times daily. The fact remains that there are risks that must be taken into account, among them:

Operational risk

  • Operational risk: given the extreme speed of transactions executed by ultra-powerful algorithms, they escape all human control. This sometimes causes an astronomical loss in nanoseconds.

Unfair markets

  • Unfair markets: the risk here being to enrich ever more influential companies and penalize individuals who do not have high-performance equipment.

Falling incomes

  • Falling incomes: Since the 2008 financial crisis, there has been a noticeable decrease in profits for HFTs.

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