HFT stands for “High Frequency Trading” mostly used for very large transactions. Whenever there is a need to transact a large number of orders, which is usually the case in online trading by institutions, an automated trading platform like HFT is used. It needs powerful computers with the latest technologies to operate at the required rates.
Why is HFT in Online Trading Useful
If you are a large investor and like to place millions of orders at stake, then HFT is the trading system that you will need. What an HFT does is it allows the trader to check on multiple markets and exchanges at the same time, in just a few seconds, and allows the trader to place millions of orders in turn. Therefore it is considered very useful for investment banks and hedge funds etc. So if an institution uses an HFT platform, it gains an edge over normal investors in open markets. And this is one of the reasons that the small players in crypto online trading, find it difficult to survive.
How Does the HFT Online Trading Work
An HFT system has its very base in using complex algorithms and statistical models. So with the help of these two in place, an HFT system is able to recognize the latest variations in the market trends within blinks of the eye. Once it comprehends these patterns, changes and variations, it sends many baskets of cryptos out, at bid ask spreads. This way these are useful to prospective investors and traders. Also, institutions that use HFT in trading, also usually use a team of economists to read the market. Both of these combined, they get an advantage over any regular trader in cryptocurrency. As a result they make great returns on the investments, and are in a position to invest more and more. HFT is also favorable because it helps add liquidity to the market.
Main Components of an HFT in Online Trading
Although nothing is black and white, an HFT usually has the following in place:
1. Outstanding speed computers that can execute orders within fractions of seconds.
2. sophisticated programs to enable quick orders and process them as instructed.
3. Enabled co-location services to minimize network latency.
4. The ability to end the trading day without carrying any significant unhedged positions.
Is HFT Fair
Now this is kind of debatable as many accuse HFT of being a weapon in the hands of institutions, which small investors cannot afford to use. However, keeping the arguments aside, HFT is a completely legal system of trading online. Usually what HFT traders do is use the imbalance between demand and supply to gain via their unmatched speed. Companies like executium.com are coming up who, although do not deploy HFT, have very fast, almost similar systems in place to come and rescue such small and mid-segment investors in cryptocurrency. Things like HFT are the ones that make trading in cryptocurrency difficult for average players.