High Frequency Trading.How Robots Help Increase Your Return on Investment
The idea of high-frequency trading (a type of algorithmic trading in which the search for trading opportunities occurs thanks to special computer algorithms, trading robots) arose back in 1989. The author of this method of using high-performance computers for stock trading and increasing returns on capital is considered to be Stephen Sawson, who, together with his partners Jim Hawkes and David Whitcomb, founded the first automated trading company - Automated Trading Desk.
However, this type of trading officially began in 1998, when the US Securities and Exchange Commission permitted the use of electronic devices in stock market trading to transmit, receive and process orders.
Algorithmic trading has gained popularity both in the foreign exchange market and in the stock and derivatives markets, as well as among institutional investors who work in hedge funds and seek large capital turnover in order to make speculative profits. With the development of the crypto industry, high-frequency trading is actively used in this area. The largest and most reliable cryptocurrency exchanges, including Bitfinex and Poloniex, even promote this type of trading, among other things because they are responsible for each transactionreceive a commission regardless of whether the client loses or makes money. According to some data, high-frequency trading accounts for up to 40% of stock trading volume in the US and about 80% in the crypto industry.
It should be noted that high-frequency trading (HFT) is only intraday trading and all investor positions must be closed by the end of the session. However, this type of trading has a number of advantages: transactions are executed at the highest speed, information is processed incredibly quickly, and the placement and cancellation of orders also occurs almost instantaneously (transactions are opened and closed in tenths and sometimes hundredths of a second).Among the big onesAdvantages of such trading also include the opportunity to check the effectiveness of a trading strategy and achieve larger profits per unit of time.
In addition, the automation of work allows the investor to save a lot of time and provides the opportunity to trade on several platforms at the same time. At the same time, unlike people, trading robots are devoid of emotions, which often prevent traders from making informed decisions. Virtual traders are always one step ahead because they are able to quickly and in a timely manner see what a normal investor cannot see on their platformIdentify trading triggers that may go undetected by others, even experienced traders.
The key competencies of a high-frequency trader therefore include: hedging risks, automating processes, searching for market inefficiencies, high transaction speed, data analysis, ensuring stable profit growth over long distances, and searching for market patterns. At the same time, such a trader completely lacks professional burnout.
However, to use high-frequency trading, an investor cannot use a regular computer with standard programs installed. This type of trading requires high performance, as well as the installation of special software, which requires significant investments.At Finam broker you can rent a virtual PC.Connect to the stock exchange using your own trading robot.Choose between renting a personal computer and a virtual server in the colocation zone of the Moscow Stock Exchange with a speed of 10 Gbit/s.
High-frequency trading can be learned at any age, but to understand it you need perseverance, persistence and attention. All this can bring tremendous results, as it greatly simplifies the investment process. A trader who has learned this type of trading analyzes the algorithm throughout the day, monitors changes in the operation of the exchange, examines new opportunities or looks for new inefficiencies, sets the predetermined rules and then loads them into the algorithm.After giving authority to the robothas delegated, the trader can do whatever he wants, or even sleep, and the robot executes transactions according to a ready-made scheme. Since the robot can handle more tools than a person in a day, the return on investment is many times higher.
Despite the fact that algorithmic trading offers huge advantages that allow you to increase trading profits and reduce the burden on the investor, robots still have their problems and this type of trading carries certain risks. One such risk is an unexpected failure of the exchange or algorithms, as a result of which the trader can suffer large losses (since robots carry out a large number of transactions in a short period of time). One such example is the history of the hedge fundKnight Capital, which took place in August 2012. Due to a technical error in the trading algorithm, the fund lost about $ 460 million in literally 40 minutes. To minimize such risks, risk control is required - market participants must monitor the quality of their algorithms and regularly carry out professional audits.
In addition, an unexpected loss of Internet connection can also cause a disruption in the algorithm. In this context, HFT data transmission technologies are of great importance. For HFT robots, where every microsecond of delay is crucial, microwave communication is faster than fiber optic communication and connects large financial centers. For this reason, many HFT companies use microwave technology to achieve a speed advantage. In this case, the optimal solution may include both technologies at the same time: microwave forcritical connections and fiber optic for the transmission of large amounts of data as a backup channel.
For investors using algorithmic and HFT trading, Finam broker provides direct access to exchanges using a range of DMA services.Direct Market Access allows you to send orders directly to the exchange and receive market information directly from trading platforms without using the broker's trading systems. This set of services allows quick execution of orders and access to market data - 1000-5000 times faster than a standard connection through a brokerage system.Exchanges are accessed in less than 50 microseconds.
At the same time, the trader can get access through proprietary and universal protocols, and margin trading is also available with post-trade collateral control and accounting technologies.It is worth noting that other advantages of direct access to exchanges include: asingle connection point to all markets of the Moscow Stock Exchange, low network latency when accessing markets and the ability to establish a redundant connection.
