Best High Frequency Trading Strategies

8 min read

There are numerous trading strategies used by traders all around the world. Everyone has their own reasons for using a certain trading strategy. In most cases, people make decisions about which strategy to use depending on numerous factors.

The first one is their knowledge and experience in the financial markets. Then, the amount of time and effort they are capable of putting into trading. Also, one factor that can have an influence on which strategy you want to use is the type of income you want to have.

If you are someone who wants to make quick returns from trading, there are quite a few options that you have. One strategy that is used by traders very often is the High-Frequency Trading strategy. Shortly known as HFT, this strategy is one of the best options that you have to make quick and high profits in the Forex trading market.

HFT is quite self-explanatory, however, one thing that some beginners might not know about it is that there actually are several types of them available. Some of the most popular strategies used in high-frequency trading include those like Pair Trading, Iceberg and Sniffer, Flash Orders, Scalping, and many others.

While these are all very different, they still have many things in common. At the end of the day, all of these trading strategies are HFT types of strategies, which means that traders will have to spend a lot of their time analyzing, opening positions, changing the positions, and closing them.

Below, we are going to discuss different types of HFT strategies. So, follow our detailed guide and find the best HFT strategies that fit your needs the best.

Pair Trading

When talking about high frequency trading 2021 strategies, there are quite a few of them that should be discussed. In the financial markets, pairs trade is a very popular trading strategy that envisages matching a long position with a short position in two assets with a high correlation. Pairs trading already has a very long history. Introduced in the 80s, this trading strategy largely focuses on statistical and technical analysis to find potential market-neutral profits.

The key aspect of this trading transaction is the market-neutral strategies. This is a process of matching long and short positions in two different securities with a positive correlation.

Those who are using this strategy are required to spend a lot of time analyzing the market, looking for opportunities, and learning more about the technical side of the financial markets, which can get quite tiring.

There are numerous advantages and disadvantages that come with these types of high frequency trading strategies. So, let’s say that the pairs perform the way it was expected, in this case, an investor makes profits. On the other hand, if the market goes the other way, investors lose their money. Mostly, profits can be generated once the underperforming security regains its value and the value of the outperforming asset drops.

But, as much as there are advantages, it also does come with several disadvantages. One of the disadvantages is that most pairs will require a correlation of around 0.80, which is quite challenging to identify.

Although there are some disadvantages associated with Pairs Trading, it still remains to be very popular in numerous financial markets around the world.

Iceberg and Sniffer

When it comes to algorithmic and high-frequency trading strategies, one that stands out the most is the Iceberg and Sniffer. This trading strategy, or algorithm, is used very frequently by different types of traders in the market. Iceberg and Sniffer are algorithms that are being used very frequently in the market to detect and react to other traders trying to hide different types of large block trades using different types of algorithms.

Much like any other High-Frequency Trading strategy, Iceberg and Sniffer also call for a huge dedication on the traders’ part. The main reason for this is that this trading strategy calls for a huge dedication and analysis of the market.

In most cases, those who are using this strategy are traders who are very involved with the financial markets and who truly understand how things happen in the world of trading. Without proper knowledge and understanding of the market, it could be quite hard to use this strategy successfully.

However, at the end of the day, this trading strategy stands to be one of the most popular trading strategies in the market and there are many people who are using it. Known as one of the most popular high frequency trading strategies, Iceberg and Sniffer strategies tend to take a lot of time from traders. Because of this, there are many traders who are using trading bots and similar programs to find the market conditions that fit their needs the best.

Flash Orders

While being very controversial, there still are many people around the world using the Flash Trading strategy. This is also a type of HFT strategy and is very popular around the world. Simply put, the main idea behind this strategy is that when using it, markets expose their order books in advance to algorithms that had previously subscribed to receive flash orders.

Simply put, this strategy creates some type of two-tiered market, which can be quite dangerous for regular, retail traders, who are basically staying behind. When discussing maximum profit high frequency trading strategies, many people believe that Flash Orders is one of the most profitable ones.

While it might be very popular among some people, it has been criticized by many others around the world. The criticism was so much that it has actually been discontinued by the majority of the exchanges and brokers around the world.

While the true nature and risks of this strategy were never the secrets of high frequency trading, it still used to be very popular among many. This strategy uses very highly sophisticated, powerful computer technology to allow market makers the ability to view the orders from other market participants.

Those who are against this strategy largely believe that it can be a great help to provide greater liquidity in secondary market exchanges. In addition, many believe that this is a very unfair and risky strategy that can affect not only those who are using it but other market participants as well.

HFT Trading / Scalping

There are many very popular trading strategies around the world, but one that is used in numerous markets by millions of people every single day is scalping. Scalping is a type of HFT strategy, which takes place during the day.

Many view it as a type of day trading strategy. In fact, there are many similarities between scalping and day trading, however, the difference is that scalping is much more demanding. When you are using this trading strategy, you are required to open and close numerous trading positions during the day.

In most cases, these positions are very small and are only able to provide traders very small profits. Still, scalping is among the best HFT strategies and a lot of people are using it. Because there are so many positions that you are opening during the day, it can be very overwhelming and tiring for traders.

Not only do you have to spend a lot more time analyzing and researching the market, but you are also required to spend a lot of time for actual trading purposes. When you are trading using this strategy, the profits that you make tend to be lower.

Because of this, to increase their profits, many scalpers are using higher leverage. But, keep in mind that leverage can be quite dangerous for traders as it significantly increases the risks associated with trading.

All in all, scalping is easily one of the most popular types of strategies of high frequency trading. There are numerous people who are using it every single day around the world and it has been proved to be very successful for traders of different experiences.

FAQ on The Best Forex High Frequency Trading Strategies

Is high-frequency trading profitable?

Yes, high frequency trading can be quite profitable as long as you do it right. There are numerous types of high frequency trading strategies available in the market and all of them provide different amounts of profits to traders. The general idea behind these strategies is to earn profits as quickly as possible. Although they are short-term strategies, the profits made with them over one or two weeks can be quite a lot.

How much money do you need for high-frequency trading?

The amount of money you will need for HFT strategies varies depending on your experience and the number of profits you want to make. However, in most cases, the amount of money you start trading with tends to be lower than you would need for long-term investments. Understanding high frequency trading strategies can be very helpful for traders in different markets as it can help them make low but quick profits.

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