Traders choose different strategies and ways to earn money from the crypto market. The choice of strategy is generally the most satisfactory countermeasure. It is best to consider different short-term and long-term strategies to determine the style that suits you. High frequency trading is one of the efficient short-term trading methods in various financial systems - but is it suitable for your crypto trading strategy? So, let's take a look at what encryption high-frequency trading is and how it works.

What is encrypted HF transaction?

High frequency trading (HFT) is a trading method that uses complex algorithms to analyze large amounts of data and conduct rapid trading. As a result, HFT can analyze multiple markets and place large orders within seconds. In the trading industry, quick implementation is generally the key to profit.

High frequency trading eliminates small bid ask spreads based on rapid large volume trading. It also allows market participants to use price changes before they are fully reflected in the order book. As a result, high-frequency trading can generate profits even in volatile or illiquid industries.

HFT first appeared in the traditional financial system, but since the infrastructure of crypto swap was improved, it entered the crypto currency industry. In cryptocurrency, high-frequency trading is suitable for trading in DEX. According to the Financial Times, it has been used by several high-frequency trading companies such as Jump Trading, DRW, DV Trading and Hehmeyer.

Decentralized exchanges are becoming increasingly popular. Compared with the traditional centralized exchange (CEX), they have brought many advantages, such as improved reliability and privacy. Therefore, the HFT strategy in cryptocurrency is a natural development.

The popularity of HFT has also led some hedge funds committed to crypto trading to choose algorithmic trading to generate high returns, prompting critics to accuse HFT of giving large organizations an advantage in crypto trading.

Anyway, HFT seems to be left in cryptocurrency transactions. With appropriate infrastructure, high-frequency trading can use beneficial market conditions to generate profits in volatile industries.

Advantages and disadvantages of high-frequency trading:

advantage:

There are many transactions, and the average profit of each transaction is small. For long-term investment portfolio, high-frequency trading strategy is a good diversification tool. From an operational perspective, automatic trading can save labor costs and reduce errors caused by human hesitation or mentality. Save operating costs and bring many benefits to the society, such as promoting computer technology innovation, increasing liquidity, improving market efficiency, stabilizing the market system, etc.

Disadvantages:

High frequency trading is conducted by computer programs. In order to ensure competitiveness, more professional hardware facilities are often required. From this perspective, high-frequency trading is, after all, a network speed problem, which adds an unfair competition environment for individual investors in the foreign exchange market. In addition, the volatility of high-frequency trading technology has also increased the volatility of the foreign exchange market, which makes it easy for people with ulterior motives to control prices, thereby throwing out the illusion that orders will not be executed, leading to the illusion of requirements, and tempting investors or relevant institutions to place orders. Therefore, high-frequency trading lacks fairness and transparency.

How does encrypted HF trading work?

This trading method infers the short-term price trend, and tries to test the market situation that is invisible to the human eye or that is not reflected quickly enough. These algorithms control the timetable for pushing market orders when reading real-time market data and information to identify beneficial opportunities.

HFT trading is suitable for arbitrage trading, buying and selling trading and other short-term trading methods that must meet similar algorithm requirements.

arbitrage opportunity

The cryptocurrency prices of different exchanges are slightly different, creating opportunities for arbitrage trading. Arbitrage trading is a way to try to profit from the subtle price differences of different exchanges or the same exchange.

You will have to buy at a low price from one exchange or market and sell at a higher price from another exchange or market. This long process must be carried out almost synchronously before the market price changes. Arbitrage trading opportunities may sometimes come from news activities and price speculation.

Bid ask spread

Such countermeasures can also be called market making strategies. By using this method, traders try to make money from the difference between the buying price and the selling price (that is, the point difference). They also execute buy and sell orders to profit from the price difference. They continue to do so, aiming to make a small profit from each transaction until the overall profit becomes rich.

For example, suppose they buy Ether at the asking price of $1300 and sell it at the buying price of $1303. In this case, the spread is only $3, but the money from the transaction comes from the spread.

What the algorithm does here is to try to make a little profit from the small difference in a second or a few seconds. Naturally, the spread is small and almost insignificant, but this is not critical because high-frequency traders have a large trading volume.

High frequency trading is a short-term trading strategy, which should only be based on short-term trends and analysis to infer prices. It is close to the scalping trading strategy, or it can be called the fast-paced scalping strategy that makes profits in a few seconds or even less than a second by using a powerful computer. HFT undoubtedly brings hedging of crypto trading to organizational traders and large organizations, as it seeks to become the first person to profit from new trends.

Speaking of this, I believe that you have a certain understanding of what encryption high-frequency transaction is and how it works. In general, Xiaobian also reminds investors that no matter whether they want to invest in cryptocurrency or not, they must have a comprehensive understanding before entering the market. After all, investment is accompanied by certain risks, so don't invest blindly.