CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data. *Availability subject to regulation.
High Frequency Trading (HFT) refers to the use of technology to automatically execute high volumes of transactions within very narrow time frames. In order to achieve the extreme speeds required for this type of trading, immense computing power is required, enabling positions to be opened and closed within microseconds.
HFT computers access the market’s computer system directly, transacting in accordance with pre-programmed instructions; and the physical distance from the market servers impacts the speed at which the algorithm reacts to its activity. The closer to exchanges that the HFT data centres are located, the less time it takes for the data to travel between the two.
The complexity of these algorithms is continually increasing, refining their ability to make trading decisions based on pertinent information and enabling more accurate reactions to price and market changes.
There are various different trading strategies that high frequency traders employ, many of which aim to benefit from price variations on similar assets. These include events arbitrage, exploiting price movements caused by financial and general events; statistical arbitrage, which uses complex mathematical modeling to compute and take advantage of pricing inefficiencies between assets; and latency arbitrage, which exploits price variations between different markets due to system delays, and the difference in price can be caused by HFT market manipulations.
High frequency traders also create liquidity within markets, acting as market makers. The market making strategy employed by HF traders takes advantage of differences between bid and ask spreads.
Because of the automation, the tremendous speeds, and the sheer volume of trades they are capable of, high frequency traders are often able to take first-mover advantage in high impact news situations; including GDP and inflation data releases, nonfarm payrolls and monetary policy announcements. Also, as the large scale trading is carried out by computers and not humans, HFT is not subject to error caused by the influence of human emotions. Other benefits include improved liquidity, and the tightening of bid/ask spreads due to the high volumes traded, reducing broker transaction costs.
Conversely, computers may not react appropriately to shock or false events: the predefined algorithms may not be capable of adequately adapting towards such volatile market conditions, or distinguishing between genuine and false news events. Changes to algorithms are often made after experiencing significant losses. For example, a flash crash occurred in 2010 as large quantities of stock were sold by high frequency trading tools, resulting in many top stocks plummeting. In these situations, the unnatural market activity high frequency trading can cause can, in turn, affect decisions made by unsuspecting traders.
Critics of the practice also argue that the market liquidity that high frequency trading provides is limited, as it can become unavailable before other traders can take advantage of it. This is less of an issue within the forex market as there is already high liquidity – but equally, there are fewer liquidity benefits to be gained from high frequency trading within the forex market.
Finally, there is a limit to how much more competitive these sophisticated computing systems can become. The technology used by markets is advancing allowing price disparity to be identified and rectified before HF traders have the opportunity to exploit them. Furthermore, the speed employed by high frequency traders themselves will hit a ceiling, and is not far off that point with recent technological advances.
High frequency trading is still popular, despite its drawbacks. According to a study carried out by TABB Group, HFT trading in Europe grew from next to nothing in 2005 to around 40% of the market share of all equity trading by 2010. This was even higher in the US where it peaked at around 60% in 2009. Increasing infrastructure costs, fierce competition, tightening regulation of the industry and the rise of alternative trading platforms have all contributed to a decrease in market share. However, despite the decline in more recent years, the strategy continues to play a major role in all markets, including forex markets.
High frequency trading appears to give traders the opportunity to take advantage of microscopic market movements and price disparity by trading in higher volumes and at colossal speeds. Whilst this has many advantages, there are also drawbacks, including the impact on traders using conventional trading strategies. This has led to more stringent regulation of the industry, and better protection from market players distorting markets.
It is always advisable to use a regulated broker, such as Plus500, as all trading strategies involve risks, and the strict regulations that regulated brokers are required to adhere to offer protection for traders. Trading forex through a regulated broker also gives a trader access to their knowledge and expertise about how high frequency trading may be affecting markets.
Forex.com scored best in our review of the top brokers for high frequency traders , which takes into account 120+ factors across eight categories. Here are some areas where Forex.com scored highly in:
Forex.com offers one way to tradeForex . If you wanted to trade EURUSD
The two most important categories in our rating system are the cost of trading and the broker’s trust score. To calculate a broker’s trust score, we take into account a range of factors, including their regulation history, years in business, liquidity provider etc.
Forex.com have a AAA trust score . This is largely down to them being regulated by Financial Conduct Authority, segregating client funds, being segregating client funds, being established for over 19
|Regulated by||Financial Conduct Authority|
|Uses tier 1 banks|
|Segregates client funds|
Want to see how Forex.com? We’ve compared their spreads, features, and key information below.
|USD/JPY Spread||0.90||DAX Spread||250.0|
|FTSE 100 Spread||150.0|
|Platform||MT4, Web Trader, NinjaTrader, Tablet & Mobile apps|
|Base currency options||USD, GBP, EUR|
|Funding options||Bank transfer, Cheque, DebitCard,|