In this video, you will learn about the risks and strategies pertaining to high-frequency trading.
Chapters:
00:00 – Introduction
00:28 – Risks of high-frequency trading
01:26 – High-frequency trading strategies
02:30 – How fast is high-frequency trading?
03:15 – Is it fair to trade this fast?
04:00 – Conclusion
Risks of high-frequency trading
HFTs rely a lot on machines that aren’t infallible. Also, if there is even a minor infrastructure issue, the HFT can incur huge losses.
Traders in HFTs usually trade n large quantities and look to capture small price movements. Even a few cents of price movement can decide whether the trader wins or loses.
(Explained in detail in the video)
High-frequency trading strategies
HFT strategies are usually based on arbitrage opportunities, market-neutral strategies, or mispricing of financial assets. There are several strategies firms use to generate profits, often trying to hide their edge.
How fast is high-frequency trading?
Performing analysis for any trade might take hours, and executing the trade could take a couple of minutes. But you know what? HFTs can do all of this in a matter of milliseconds.
(Explained in detail in the video)
Is it fair to trade this fast?
Critics claim that HFTs give big players an unfair advantage over smaller firms that cannot afford to set up HFTs. The 2010 Flash Crash was even said to be caused by HFTs.
If seen purely from a legal perspective, then HFTs are valid. But regulators are worried that the superior technology gives the big players the power to manipulate markets.
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