What is High-Frequency Trading (HFT)?
Many trading strategies appear to be profitable to cryptocurrency traders, but a few are more successful than the rest. One such is called high-frequency trading. The emphasis of HFT is on speed. This technique uses several algorithms to analyze the smallest price changes and differences between an asset’s price on many exchanges.
Most HFT platforms and systems can automatically open and close several trade positions per second, striving for short-term goals that would be unnoticed by human eyes.
Traditionally, this trading technique pertains to foreign exchange (forex), stock, and other markets. However, over time, high-frequency trading has become useful in the crypto space. This is particularly due to the multiple trades per second that it offers which could be profitable for crypto traders.
There are specialized services that provide HFT platforms for institutional investors to help them benefit from the high volatility of cryptocurrencies. However ,If you’re a retail trader, you should be cautious of suspicious online services pretending to provide profitable HFT algorithms in exchange for a price paid in advance. Most of these algorithms aren’t authentic.
How High Frequency Trading works in Crypto
The HFT process involves a lot of automation. The computers used to conduct high-frequency trading are programmed to host intricate algorithms, which repeatedly evaluate all cryptocurrencies across multiple exchanges by millisecond.
The algorithms are built by trading experts to observe trends and other trading triggers that other traders cannot observe, no matter how professional they are. The programs automatically open a large number of positions at high speed. This is done in order to be the first to benefit from the emerging trends detected by the algorithm.
High-frequency trading (HFT) takes advantage of small price shifts to exploit the bid-ask spread. The bid-ask spread is the difference between the price at which you buy and the lowest price at which you’re able to sell.
When you buy a cryptocurrency like Bitcoin, you’re not paying the market price; rather, you’re hitting the ask price, which is higher than the market price. Conversely, if you sell Bitcoin, you’ll be paid the bid price, which is lower than the current market price.
While each of these HF trades generates small amounts of profits, executing thousands of them can make it a very profitable strategy.