High Frequency Trading

By | April 21, 2014

high frequency trading

High-frequency trading (HFT) is a type of algorithmic trading, specifically the use of sophisticated technological tools and computer algorithms to rapidly trade securities

Understanding some of the different ways of trading in the stock market can open your eyes to the opportunities that exist. Learning how you can make your capital grow at the rate you are happy with, but understanding the risk involved is also an important factor in the participation in some of the high risk trading options.

High frequency trader is a term used for companies that use computers and algorithms to determine the options that are going to make money. But it is not about the length of term that the stock is held for or a percentage of profit, they are looking for profit and short term investing. The profit could just be as small as a few cents per share but if you multiple this by the number of transactions that can be processed by these high frequency traders then they are making serious money.

It is about the amount of transactions; slow computers can cost a company money because they are not able to trade fast enough. It is about speed and power in this section of the industry.

The amount of high frequency trading that is happening on the markets is increasing each year, along with the technology and the computer algorithms that allow for the computers to detect a profit margin, in the stocks and shares that are being sold and traded. The more that a company can trade at this high frequency trade rate the more money they can potentially make.

These companies are not trading with long term investors, these are typically a different market strategy, and they are looking to trade with other high frequency trading companies. This type of trading has more risk because you are looking for the smaller pockets of profit and to trade them on quicker, you are not looking at sitting on the investment for a long time. This means that you are looking to turn a quick profit and this isn’t always going to happen, so along with the potential to make large profits so, too, is the potential to make losses.

Supplement Liquidity Providers (SLP)

This fund, created in 2009 to help the high frequency traders, pays a rate for the trades in the high frequency trading market; the amount per transaction is tiny but multiplying by the numbers of trades and this produces a great return for the privilege of this type of trading. It allows the liquidity of the markets to keep moving, the lack of liquidity was blamed for the crash of a company in 2008. For this reason, the New York stock exchange created the SLP to ensure that the future of the liquidity was not going to be questioned again.

Therefore, if you are looking to increase your capital, then considering the option of high frequency trading could be the answer you are looking for. But remember this option is risky and you could lose more than you make.

  

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