Gone are the days when stock trading was a straight forward business, where buyers and sellers used to come in contact on the trading pit of the floor of exchange to make profitable deals. Now anyone with a laptop or a desktop computer can make money by trading stock online even from the ease of their homes.
High frequency trading is a trading method which is very much popular among Dow Jones. Some experts think it’s a good strategy while others think there is a darker side to it. I think it depends on the interests and needs of the traders. If you want small but certain money, this is really a good strategy for you. Many people agree to this theory, which is why HFT takes 60% of the volume in the United States equities market, Dow Jones. You can imagine the volume of HFT in the US equities market from this figure that in the past few days, 90% trading recorded in Dow Jones was high frequency trading.
Why HFT is a jackpot for traders?
HFT allows both traders to earn millions of dollars in milliseconds. It has become so technologically advanced that it is not a matter of efficiency now but it’s the speed that decides who wins. The powerful high speed computers transmit a large number of flash orders with the speed of light and these orders are met in a fraction of a second. It is opposite to buy and hold strategy, in which you buy the stock and wait until its price increases. You break down your larger order into small chunks of stock and transmit it to sellers in less than 3 milliseconds.
These sellers already have the required stocks, which they will sell immediately at a profit. The best thing is that even though you earn small profit but it is a sure shot. Just imagine that by increasing the frequency of this profit, you can earn massive sums and that is nothing short of hitting the jackpot.
HFT is not only a jackpot for the small wholesale businesses and traders but it also equally good for the entire market. It brings liquidity in the market, aids price discovery and lowers transaction costs. The problem starts when the High frequency Trading exacerbates volatility and derives crazy swings in the stock prices. The main reason behind it, most of the times, is the positive and the negative news which are mere speculations. So, understanding the basics of the stock market and being up to date are the only ways to be successful in higher frequency trading.
Equity Trading Capital is the most renowned and famous company that provides authentic trading education. It organizes special seminars for beginners and teaches useful strategies and tips to them. If you wish to get into High Frequency Trading after reading this post, kindly attend these seminars and do your homework first. You can only expect hitting a jackpot after taking care of these basics.