If you need to make a larger number of trades per day, you want to do it at a high speed. These trades need to take place in milliseconds, not seconds. This is something that a human cannot achieve alone. It is the reason why many financial firms have created automated trading that can process a huge number of transactions in milliseconds.
How does it Work?
A company creates trading platform software that makes trades using an algorithm. This means that once some preset parameters are met, the software executes trades within those parameters. The algorithm analyzes market trends in milliseconds and places single or multiple orders.
The Market Share of HFT
It is estimated that HFT accounts for almost 40% of shares trading volumes and about 15% of all commodities and forex trading. This practice is especially prevalent in the US.
Benefits of High Frequency Trading
High frequency trading allows traders to take advantage of even the smallest changes in the market in milliseconds. The possibility of making a lot of money is also higher since high-frequency traders usually trade huge amounts of money.
The spreads are high since the high speeds enable a trade to enter and exit trades quickly.
HFT helps to enhance the liquidity of the market. This is because it increases the competition in the market since traders are executed fast and the volume of trades increases a great deal. This causes the bid-ask spreads to decline, which makes the market more price-efficient.
The Downside of HFT
This system is not kind to small investors. This is because their spread can be canceled by a HFT. Besides that, the high volumes sometimes affect market prices, which is hard for small traders to predict. It has also led to the end of numerous broker-dealers. However, this might be good since it has helped to lower the trading fees.
Using a HFT VPS
For small traders, purchasing a high-speed machine can be expensive and out of reach. However, using a home computer is not an efficient way to take advantage of high frequency trading. To get over this, you should use a high-frequency trading VPS. Some of the benefits are:
24 Hour Trading
While you can run your PC 24/6, the home computer will not be able to handle such use. With VPS, you can set up the algorithm and let it execute the trades for you.
Faster Execution
If you hope to be competitive in HFT, you need a very reliable internet connection. Your home computer can simply not achieve these speeds. With a HFT VPS, the trades can compete with even the fastest HFT companies in the world.
You can Monitor Performance from Any Location
If you use your home computer, you are confined to trading only when you are next to it. A HFT VPS will allow you to configure your trading robot from any location in the world, as long as you have an internet connection.
Summary
If you are just entering the HFT market, you should start with a basic package. Ensure that you choose a VPS provider that allows you to upgrade your plan as your trades grow.