Monthly Archives: September 2018

Is High-frequency Trading Just Another Fad?

In a competitive market where time is money, high-frequency trading is very relevant. This is the method of using the algorithms to execute millions of trades in a fraction of a second. Read bitcoin trader review. Compare this to the conventional scenario where a human trader executes an order. There would definitely be slight delays in the order placed by the human trader against the order placed by an algorithm.

The milliseconds of delay might appear to be a negligible factor to some traders. But the truth is that even the slightest delay can make your calculations invalid. By the time your order has actually placed the value of the asset might already have changed thanks to the millions of bots operating in the market. So is that a good thing or a bad thing? It is actually a bit of both.

When you say that one fine day the bots would be ruling the stock market and that the bots would be placing the orders it might sound like a story out of a science fiction movie. But the truth is that we are nearly there. The bots might not have taken full control but hidden under plain sight a major portion of the orders being executed are those placed by the bots. So this is not a speculative concept anymore. High-frequency trading is not a mere theory anymore. There are many that are now enjoying the fruits of high-frequency trading.

To regulate or not

The real trouble here begins with the fact that high-frequency trading is one such concept that cannot be easily regulated. There is no direct way to understand the type of regulations to impose on it. There are indeed multiple benefits that the governments can reap from this method of trading besides the benefits for the individual investors. So why would governments ban something that can indeed help the economy?

But then there are cases where there are traders or institutions that use flash bids. As a result, they simply place orders to artificially boost the demand, to observe how much the crowd is willing to pay for that asset. Once the sentiments of the masses on that asset are gauged, the bids are canceled. Flash traders can gain valuable insight into the behavior or the traders in this case. But the other traders take a hit from the false hype created and might end up overvaluing the asset.

To prevent such instances having a regulation in place would be the way to go. Legislations would also help ease the grievances of several traders who fret at the concept of high-frequency trading due to the inequality in the timing that these trades cause.

  • High-frequency trades can make the market move
  • They can be used to make quicker and larger profits

There are many more such benefits to using HFT. One thing that we know for sure that this is a trend that is here to stay. And this is one of the trends that have changed the role of humans in the field of trading, forever.