High-frequency trading


The development of information technologies and automated systems, according to the Statistical Office of the United States, has risen more than 5 times over the past 10 years, and with each year continues to increase rapidly. New online payment acceptance services, automated platforms for the sale of goods and services, as well as fundraisers, are being created. The whole world has become digitized, and interaction with the Internet today can be done in one click. The financial markets are also following these trends.

Highly technological products are used by institutional investors (banks, hedge funds), as well as by experienced individual traders. All that is needed for the trader is to repeatedly engage in a profitable algorithm with the help of the most popular programming languages for the FIX API Protocol, that is, FIX API C#, FIX API python, FIX API Java. So why not automate it?

High-frequency trading, or HFT, is trading on the financial market which allows for high speed buy/sell transactions of a financial instrument. In other words, it is a type of trade, where the deals are performed by a robot algorithm. FIX API trader can trade directly with the interbank market which allows to bypass the latencies on the part of the broker’s servers and thus “play” on them. Every trader has their own trading system: the set of rules and principles, by which the trade is carried out. This system can be automated.

As HFT trade is lead by robots, they, in a fraction of a second, can carry out an analysis of the asset, and in the same fraction of a second can decide to enter a short or long position. This provides a clear advantage due to fixing a position via FIX API Protocol, which is used by almost all the world’s financial sites. In particular, one of the leaders in this sphere is CQG FIX API.

What is the working principle of High-frequency trading

At the time of the exchange opening, publication of financial reports of companies, or changes of the Central Bank monetary policy, the market experiences heightened volatility. This is the moment where the maximum number of such trade deals is performed. Due to the expansion of the spread, arbitrage correlation or the quotations’ volatility difference (typically those of the currency pairs), HFT robots capture the micro results, and thus a huge number of transactions allows you to get a positive rate of return. Of course this requires a FIX API broker that gives access to the open liquidity market.

What type of HFT is the most popular and affordable for a simple trader

 

HFT algorithm is unique with each investment company or fund and is carefully kept secret . Wikipedia denotes 4 popular kinds of strategies, but for a simple user it more realistic and feasible to utilize the overall principle of this strategy, the arbitration.

Arbitration is a trading strategy which takes into account the difference in prices for the same asset due to the “time lag”. This type of trading can be divided into 2 sub types: FIX API Latency Arbitrage and FIX API 2-Legs Arbitrage. The difference of these types is that in the first one, the robot finds the difference for the same asset at two brokers and opens a transaction at a “slow” broker (Latency Arbitrage). Often this strategy is used with the help of locking open positions or by the principle of FIX API Lock Arbitrage. In the second type, a robot purchases the same asset at one broker and sells it at a second one (2-Legs Arbitrage). As HFT allows you to perform the operation in a matter of microseconds, in those moments when the price per share at one site is different from the other with a minimal latency, this is enough for a robot to make several transactions and fix profit. Besides, an HFT robot can analyze multiple marketplaces, find the difference in price for the same asset, and make transactions calculating price latencies on one exchange site. In addition to exchanges, the difference may be in the instrument itself as well as the derived asset. For example, the value of the share is $100, and a derivative for it is 100.01 $ (price is kept for about a second). During this time, the robot opens a transaction for sale of derivative asset. And this one cent will comprise the profit. But it’s for only 1 share. What if there’s a 100? Or a 1000? With hundreds of such deals per day? Of course, this will make a substantial yield for a company or a trader that has a trading robot.

Example of arbitrage performed by a robot

HFT allows traders to get rid of the constant analysis of market fluctuations and concentrate on the optimization and automation of its trading system. Because the Forex market is quite volatile, in order to use the HFT one needs a FIX API forex broker. This will increase profitability due to fast responsiveness of the robot, which is not possible for a human. Moreover, on the basis of HFT you can build multiple trading algorithms and thus reduce risks and diversify investment capital

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