When it comes to trading, most people generally think about trading stocks, commodities, currency pairs, and more. But there are some individuals and firms who prefer to go for the HFT- High Frequency Trading. This new form of trading, which was introduced many years back, has now emerged as the most popular form of trading, thanks to rapid technological development.
It has become a prominent and profitable investment strategy for traders who can take the risk. HFT is a super-fast order execution trading that utilizes advanced HFT algorithms to carry out different trading activities based on the trading rules and market data. Order-to-work ratio and execution rates leverage High Frequency financial data and electronic trading resources.
Compared to other forms of trading, this approach is very different. Carried out using a High Frequency trading software program, this market utilizes extreme market conditions and short-term trends. As a result, you can execute buy as well as sell orders faster without the involvement of any human.
Talking about High Frequency trading’s benefits, these are very clear. By deploying the right strategy to conduct the trade, the traders, especially the retail traders, can increase their profits while trying to lower their risk. There is another beneficial aspect that you should consider.
As long as you use powerful High Frequency trading software for trading, you can enjoy accurate and real-time information. There are some powerful HFT systems that can offer very low latency speeds so that you can enjoy timely and precise results. You can now enjoy and take advantage of opportunities and come up with informed decisions to make your profit large.
Well, when it comes to increasing the chances of gaining more, it is crucial to deploy the best High Frequency trading software. Those who are doing such form of trading should know about What is High Frequency Trading Software?
In general, such software programs are developed to identify and analyze different market trends. When you can use them, you can keep yourself updated about the potential trade and can react faster. On the other hand, apart from detecting the possible trends, some programs can also identify possible discrepancies in the trade execution.
When you have the best software, you can prevent the risks that can arise due to price disparity and microscopic market trends, and you will be able to trade at the right volume. Now, you might be wondering What software do High Frequency traders use?
So that you can use that to enjoy successful HFT trading, well, keep reading to explore all the things. Before moving further, it will be better for you to have a better understanding of HFT and its advantages.
High Frequency trading- A new, risky yet profitable form of trading
What you will read in this Post
In simple words, this form of trading is ultra-efficient and fast. Traders are now using this. As the name suggests, the trading happens at a high frequency with multiple order-to-buy ratios that leverage powerful, advanced, and fast electronic trading tools and the accurate market as well as financial data.
Over the last two decades, it has helped institutional investors, large banks and investment firms, and more to make a huge amount of money. But some have suggested that this can be very risky.
Its benefits for the large volume traders
Well, they have multiple advantages; for example, they can trade from anywhere and anytime without any help. However, because of the higher turnover rate and quick speed, they can sometimes become easy targets for the fake trading system as well as unscrupulous traders.
However, by utilizing HFT systems, they can lower the trades number that they need to keep an eye on, and they can easily focus on the major tasks, like managing their businesses. So, they can enjoy more profits.
What about the average traders?
If you look closely at this form of trading, you will find a lot of arbitrage opportunities. Such opportunities will take advantage of the price differences that can generate between ask prices and bid prices.
So, all the small investors now can take advantage of that price differences. So, for all the small traders, arbitrage opportunities are very useful and valuable. And they can trade even though they don’t have much expertise or resources to sustain in the market.
The computer systems are so powerful that they can easily access the computer system of the markets, carrying out the transaction following the pre-programmed instructions.
There is one thing that you should remember that the physical location of the system from the market servers can affect the algorithm’s reaction to a certain activity.
With time, the algorithm’s complexity is changing rapidly. Now, you can make your trading decision based on accurate information. As a result, your reaction will be accurate considering market and price changes.
Traders use different types of strategies to benefit from price variation on different assets.
This may cover exploiting price movements, events arbitrage, and more. Some may go for statistical arbitrage, and that uses different types of complex mathematical modeling. This way, they can calculate and take advantage of the cost inefficiencies between various assets as well as latency arbitrage. This can exploit trade price variations, and the major reason behind this can be delays in systems. There are some traders who can easily create liquidity in this trading market, working as the market makers.
Understanding some useful benefits of High Frequency trading
HFT can offer a lot of benefits compared to traditional trading methods. However, some of the major benefits that you need to keep in mind are:
- Better Speed
One of the major benefits of utilizing HFT is the speed this form of trading offers. As it involves advanced HFT algorithms, it can analyze different parameters along with some technical indicators within a few seconds. Well, there should be an increased speed so that the traders can easily capture the movements of the price.
- Maximum Level of Accuracy
Another major benefit of this trading is that it requires minimal human intervention. So, the chances of facing errors will be very low. The algorithms are properly checked and then rechecked.
Human errors will not affect them. The traders can make errors, and they sometimes may fail to study the technical indicators correctly. But the computer system will not make any mistakes. So, you can execute the orders with better accuracy.
- The Cost Will Be Low
HFT allows the execution of large trade volumes within a few seconds. That’s why you can process multiple trades, and the costs of the transaction can be reduced. That’s why a greater number of traders are now shifting towards High-Frequency trading as they know if they can manage to trade properly, they can earn huge profits within a few hours.
- No Effect of the Human Emotions
Such a form of trading lowers the involvement of human emotions in the trade. The trading strategies will be pre-formulated so the traders will not get space to use their emotions. The trade will execute when the pre-required objectives are met.
The entire process will be automatic, and you can’t rethink it. As per the experts, HFT trading carried out using the best high-frequency trading software can keep over-trading and under-trading in control. As there will be no psychological elements, the chances of making errors will be very low.
- Better Market Volumes
With the help of HFT, massive volumes of shares can be sold and purchased within a few seconds. So, the liquidity and volume of the market will increase, and the entire trading process will be more systematic and streamlined.
- You Can Back-Test The Strategies
When a new HFT strategy or algorithm is created, it is tested using old that before the deployment. This way, the effectiveness of the strategy can be verified. Based on the test result, you can then modify that to fit into your requirements.
Such type of trading utilizes powerful computers and algorithms. As a result, it will be much easier for you to execute multiple trades and strategies at the same time. This can’t be possible humanly.
You can scan different trading opportunities considering different markets, orders and instruments. As a result, there will be a perfect diversification that is impossible to attain without algorithms and automation.
However, it may be noted that to enjoy all these benefits, it is important to use the best high frequency trading software. And you should also know What software do high frequency traders use? So, let’s have a complete discussion on this.
What software do High Frequency traders use?
As discussed above, HFT utilizes different electronic trading systems and computer algorithms to enter and exit positions automatically in the markets. Besides, such trading focuses on executing the algorithms within a few seconds or minutes. So, high frequency trading software has become an integral part of such strategies.
It has been seen that apart from using different widely used trading strategies, for example, black box and automated trading, some traders use HFT software. When doing the online auction, by programming the software, you can make it to find the perfect price in order to maximize the buying price. If the price is right, then the software will execute the bid faster, and there is no need to use human resources. This is how an HFT software program works.
Remember that such software can be very costly to buy, and it is challenging to make your own software. While buying ready-made programs can offer you timely and quick access, developing your own software will let you enjoy a maximum level of flexibility to customize it.
What software do high frequency traders use? Well, this will depend on the personal choice of the traders. However, it is advisable to understand everything about the software and the core functionality before start using it.
What is High Frequency trading software?
Speaking about such software, this is quite helpful to the traders. The faster things go with HFT, the better will be your chances to make a profit. When it comes to the “things,” it may include scans, charts, files, computers, and more.
HFT uses complex algorithms as well as computer tools to conduct the trades at a great speed. High Frequency trading system or program can make it happen within a few seconds. Here are different types of HFT software that traders can use.
#1 Black box trading system
The components that the black box trading system has can lead you to the desired profits. Such type of system functions automatically throughout the trading process and can smoothly execute your multiple trades, even when you are not using the platform.
Once programmed, the system will identify the new trades and can also close the positions. On the other hand, some systems can connect the traders to the brokerage platform without affecting your day-to-day trading activities. Do you know what is the best part of using a black box trading system? Well, you don’t have to learn the technicalities of this trading.
These powerful systems can be used to trade commodities, stocks, forex, and more. So, just by using just one system, you can participate in multiple financial activities.
#2 Automated invest bot
There are some quality HFT tools or systems that can be easily connected to the users’ bank account to enjoy a seamless trading experience. Once connected, the system can utilize the fund for investment based on your profit and loss rules. If you have defined the trade dates or returns, the system will detect some of the best and profitable trading opportunities and execute the trade.
For all the high frequency traders, investing in the best-automated investment bot system can be an ideal way to make a profit. However, before deploying it, you need to ensure that the tool will only open and close your traders when the pre-set conditions are met.
These trading systems have an easy-to-use structure or interface. Whether you are a professional trader or just a beginner, using this, you can enjoy a smooth and fast trading experience. Want to know more about What software do high frequency traders use? Well, the traders normally use HFT software that comes with the below-mentioned features.
Some features to lookout
You all know that the risk involvement level in this form of trading is very high, and a small mistake can lead to a huge loss. Regardless of what type of system you are using, you should make sure that the software has the following features.
- Availability of Detailed Company as Well as Market Data
The algorithms are carefully developed to execute the orders based on real-time price quotes and market data. There are some programs that can be easily customized based on a company’s data, for example, P/E ratios and earnings.
A perfect software should be able to provide real-time company data feed and market data feed. And make sure that there is a provision to integrate different functions from multiple sources.
- A Proper Connection to Different Markets
The HFT traders who want to deal with multiple markets should keep in mind that the exchanges can offer data feed in multiple languages and formats. For example, FIX, Multicast, or TCP/IP. Make sure that the program can accept feeds that are in various formats.
There are other options that you can try, such as using third-party data providers, such as Reuters or Bloomberg. But instead of searching for data manually, you should try to automate the task.
It will be better to automate the process.
- Check The Software’s Latency
This is an important factor to think about while choosing a high frequency trading software. In simple words, latency is the time delay that the users face during the movement of data from one place to another. You can consider a trading event.
In general, it only takes around 0.3 to 0.5 seconds for a quote to arrive at the data center of the vendor from the exchange. Then to reach your device screen, it can take 0.3 seconds. Now, your software will take 0.1 seconds to process the data, around 0.4 seconds for data analysis and trade execution.
Well, the market has become very dynamic, and the price quote can change multiple times within this period. A delay of few seconds can break or make your trading. So, it is advisable to choose an HFT software which latency is very low to get the information much faster, and there will be no time gap.
A few effective ways to enhance the latency include establishing direct connectivity to the trade exchange to obtain data much faster. This way, your trading algorithm will increase.
- Check The Software Customization and Features
Some software programs come with built-in or pre-set high frequency trade algorithms, for example, a 50-day moving average with the 150-day moving average.
However, some traders may want to do experiments by switching to the 30-day moving average with the 200-day moving average. If the software doesn’t support any customization, then you can’t try out these things. So, make sure that it can offer you a high degree of customization.
- Must Have the Functionality to Write Programs
Perl, JAVA, Python, or C++ are some widely used programming languages that are utilized to create quality HFT software. Various tools or applications offered by third-party retailers support the ability to write custom programs. As a result, you will be able to try out different trading concepts.
This is the process of testing different trading strategies based on old data. It analyzes the past strategy’s profitability and practicality on the old data, ensuring that it can make the trade successful. What’s more? This crucial feature should be supported by the availability of sufficient historical data on which back-test can be conducted.
- Easy Integration
The software can trade automatically based on the pre-set criteria. Make sure that the software has excellent connectivity to the exchange or networks for executing the trades instantly.
In order to create a perfect planning process, it is important to understand the transaction costs and fees. And for the software needs to be integrated into other tools. Make sure you can integrate that into your existing MT4 trading platform.
On the other hand, an HFT trader may be using his broker’s platform for trading, the Bloomberg platform, to analyze the price, and he may also use a Matlab tool to analyze the trends.
Based on everyone’s requirements, the software must have a plug-and-play integration feature along with some best APIs. It will ensure perfect integration and scalability.
- Autonomous Programming
Some programming languages need a dedicated platform. For example, only a few operating systems can process C++. But Perl programming language can operate across all the operating systems.
So, while buying a good high frequency trading software, make sure that it can run on different operating systems, such as Windows, Linux, Mac OS, and more.
- Check The Stuff Under the Hood
Well, it is essential for the traders to understand what is there under the hood. While making the purchase, you should ask the supplier for detailed documentation that can demonstrate the underlying logic of an HFT trading software. Don’t go for complete black box software.
Don’t forget to compare the cost that you will have to handle while using the software. For example, the cost of the development, maintenance, and more. What is High Frequency Trading Software? After going through all the sections, now you must have a clear idea about the HFT software and how to pick the right one.
Is HFT software legal?
Yes, such tools or programs are legal, and you will not attract any legal consequences. As discussed above, such software functions on the data that is available publicly. Besides, it also uses the latest market data, financial data and offers the report following all the required rules and regulations.
Well, it has accelerated the hue, and some bad activities by some firms are now affecting others. There are many HFT firms that work as market-making firms. Under the market making, the makers offer the bids as well as sell orders and the generated money from the spread.
But more such activities can lead to a crash, just like the event that happened in 2010. In that year, Navinder Saro, a futures trader a 1000-point crash in Dow within just 10 minutes and made the market lose more than one trillion dollars. On the other hand, a few blue-chip companies traded under a penny.
The fear is still there, but technological advancement has lowered the risk levels among the trader. The exchanges and firms are now also following all the rules. However, in HFT, trading quote stuffing is illegal. This includes adding and then withdrawing a large number of orders and developing confusion for the traders.
Understanding some benefits of HFT software
Well, as per the experts, using such software, one can enjoy on-time and accurate trading activities. Besides, they are designed to handle and maintain your bank management process. For example, one can deposit offline currencies and can transfer assets to trading accounts with the help of such software.
The software can also handle the OTC- Over The Counter Security. In general, OTC security trades at affordable prices. Some prefer to go for OTC markets as they are affordable than your traditional exchanges, and it is also easy to identify certain securities based on your requirements.
An HFT software can help you to invest in the OTC market. Some tools come with a suite of extra trading tools, for example, market-grade quantitative data models, more detailed forecasting, frequent updates of intraday trade signals, and more. Besides, they also allow you to track your overall trading performance in a meaningful way, and you can also measure all your performances against your competitors or traders.
Some tools utilize Machine Learning and Artificial Intelligence to understand your trading history and then compare the data with the presents trades to offer you profitable HFT strategies. On the other hand, every software program is backed by a professional tech support team who can guide you on how to use them properly.
All types of data, including markets and companies, move at high speed. And competition level is increasing with time. There is no doubt that such trading can offer the traders the opportunity to enjoy the microscopic market movements. Even though there are some drawbacks, it can be a very lucrative market for all.
To make the process a lot easier, you can trust the high frequency trading software that can automate the trading process. You can use these tools to makes sure that your trading is completed in an accurate, efficient, and timely manner. And the chances of getting profits are also good.
Besides, while choosing a broker, make sure that the platform is properly regulated so that you can enjoy a better level of protection against fake traders. Trading through a licensed and regulated broker or HFT software provider can give the traders instant access to their knowledge as well as expertise about how high frequency trading.