Kinds of trading. High-Frequency Trading

Kinds of trading. High-Frequency Trading

Today in the new 2021 year we are starting short series of guides of kind of trading!

TYPES OF TRADING

In the global world of financial markets, trading is divided into types based on the time during which a position (transaction) is held. So, there are 6 generally accepted types (styles):

High-frequency trading — trades last a fraction of a second.

Scalping. Position holding time is calculated in seconds and several minutes.

Day trading. This type of trading is also called intraday trading, or intraday trading. As the name implies, all transactions are carried out within one trading session. Positions are held no longer than the duration of the trading session. An intraday trader goes home with no open trades.

Swing trading. The position is held for more than one day. Usually — from several days to several months. There is no clear time frame here.

Medium-term trading. This method is for those traders who catch long swings. “Medium term” hold positions for many weeks and months.

Long-term investment. This type of “buy and hold” trading is most suitable for the stock market. A striking example is one of the richest people on the planet, Warren Buffett.

HIGH FREQUENCY TRADING

What is High Frequency Trading? This is a type of trading in which positions are opened and closed as often as possible. This type of trading is also called HFT (High Frequency).

HF Trading is a business of robots, because the average position holding time is about 100 milliseconds.

Benefits:

By creating the perfect robot, you get a versatile money-making machine.

In addition to a stable cash flow, you get a lot of free time.

This is a fairy tale, but keep in mind that fairy tales in real life are surprisingly rare.

Disadvantages:

  • difficulty in programming the robot;
    nuances in testing and optimization;
  • an HFT robot needs special conditions — the fastest and most uninterrupted access to the exchange, a stable power supply. Hundredths of a second delay can be fatal.
  • frequent trades = big commissions. Therefore, not all markets are suitable for HFT trading. We only need liquid instruments with minimal costs. And it is desirable, such conditions, with which market makers trade.
  • It often happens that over time, an HFT robot (like any other) loses its efficiency, as the nature of the market changes, the rules of the game change.

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