This approach allows to trade with minimal risks and thereby keep the profits during almost the entire trend, making earnings even on corrective reversals. This is why the economic news is released exactly at the top of the hour, or by the second on that due date, so these algorithms should not start buying or selling earlier than this. The opposite is true as well, with a disappointing release being met with selling orders. This is the HFT operations. High-frequency trading is joined by simple algorithmic trading and I would not be surprised if in a few years the trading robots completely flood the speculative market.
In spite of this, in addition to the appointed goals of the markets, people managed to find for themselves a certain benefit in the form of exchange speculation.
That is how the traders and the market appeared in the way we know them today. The ability to make money on market fluctuations is a great art that every year attracts more and more fans. Today, the most popular kind of speculative operations is the use of high-frequency trading https: HFT means opening positions in a fraction of a second for opening a multitude of trading transactions with a fixation of the minimum price movement.
In essence, these are trading robots in the form of programs that based on a given algorithm perform stock transactions. I want to note that according to the US Bureau of Statistics, more than a half of the stock market already uses this approach in fix api trading.
Algorithms can be completely different. But the principle is to open transactions based on the market trends or movement. All HFT robots make trade transactions in the trend direction and thereby support it. Imagine a shark that swims leisurely in the ocean. This is a trend that is moving in a certain direction.
Now, imagine a lot of small fish that swim in the footsteps of the shark. This is called scalability. There are many types of robots, or computer-programmed algorithms, in this industry, starting with quants and ending with very basic buying and selling.
In order to understand the size of this industry, imagine that these robots actually take thousands of trades per second. Yes, that is correct. Thousands of trades are traded each and every second, and this is what makes the Forex market so unpredictable and full of fake moves. The normal retail trader calculates the pips performance based on a five-digit quotation, but the HFT industry trades on the seventh and eighth digit of a currency-pair quotation. Can you imagine the access to the interbank liquidity, the resources and the costs to sustain such execution, not to mention computer hosting and maintenance costs?
These are tremendous amounts that are being paid out, but it seems they are worth the trouble. The opposite is true as well, with a disappointing release being met with selling orders.
When it comes to the trading algorithms mentioned above, they are programmed to buy or to sell based on that outcome. This is why the economic news is released exactly at the top of the hour, or by the second on that due date, so these algorithms should not start buying or selling earlier than this. Remember the scalability concept mentioned at the start of this article?
Because of it, the actual amounts of money these algorithms move are tremendous. For the HFT industry, though, this is the norm. If you think that what was described above is not spooky enough, consider this. There are trading robots that are instructed to buy or sell based on different words that do or do not appear in documents or statements that are released. Let me give you an example. Trading is not like it used to be, as the IT industry has changed the face of it forever.
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