High-frequency trading (HFT) is a trading method that uses advanced algorithms to analyze big data and make fast transactions. With HFT, traders can take advantage of market opportunities that are not usually available to ordinary traders.
HFT can analyze various markets and execute large order volumes in seconds.
In the world of trading, fast execution is often the key to making profits. HFT eliminates small buying and selling price differences by executing large transaction volumes quickly.
HFT also allows market participants to take advantage of price changes before they are fully reflected in the order book. As a result, HFT can generate profits even in volatile or illiquid markets.
When did HFT first appear?
HFT first appeared in traditional financial markets but later spread to the crypto space due to infrastructure improvements in crypto exchanges. In the crypto world, HFT can be used to trade on decentralized exchanges (DEX). HFT is already used by several high frequency trading houses such as Jump Trading, DRW, DV Trading and Hehmeyer.
What is Decentralized Exchange?
Decentralized exchanges are crypto exchanges that do not have a central authority controlling transactions. The DEX is built on the Ethereum blockchain and offers a wide range of tokens, low fees, and anonymity.
With DEX, traders can trade tokens before entering a large exchange. Additionally, decentralized exchanges are non-custodial, meaning creators cannot commit exit fraud - in theory.
Thus, the emergence of HFT strategies in crypto is a natural development. The popularity of HFT has also led some hedge funds that focus on crypto trading to use trading algorithms to make huge profits.
Thus, HFT has received criticism from those who criticize HFT because it gives large organizations an advantage in crypto trading. However, HFT seems to be here to stay in the world of crypto trading. With the right infrastructure, HFT can be used to generate profits by taking advantage of favorable market conditions in a volatile market.
How Does HFT Work on DEX?
The basic principle behind HFT is simple: buy low, sell high. To do this, HFT algorithms analyze big data to identify patterns and trends that can be exploited to advantage. For example, an algorithm can recognize a certain price trend and then execute a large number of buy or sell orders in a short period of time to take advantage of it.
To do HFT on DEX, traders need several things, such as:
Quick access to market data
Traders should be able to get the most up-to-date information on prices, volumes and liquidity across various DEXs. Traders can use aggregator services such as 1inch or OpenOcean to compare the best prices across various DEXs.
Reliable infrastructure
Traders must have a fast and stable internet connection, as well as capable hardware and software. Traders should also consider factors such as latency, network errors, and network congestion that could disrupt order execution.
Smart strategy
Traders must have a trading strategy that suits their goals and risk profile. Some commonly used HFT strategies on DEX are:
Arbitrage
This strategy involves taking advantage of price differences between two or more DEXs. For example, if the price of Bitcoin is lower on DEX A than on DEX B, a trader can buy Bitcoin on DEX A and sell it on DEX B to make a profit.
Market making
This strategy involves providing liquidity on the DEX by placing buy and sell orders on both sides of the market. Traders can profit from the difference in buying and selling prices, as well as liquidity rewards from DEX.
Short term opportunity
This strategy involves taking advantage of short-term price movements caused by factors such as news, rumors, or market sentiment. Traders can use technical indicators, fundamental analysis, or sentiment analysis to identify trading opportunities.
Trading volume
This strategy involves taking advantage of the high trading volume on the DEX. High trading volume can indicate strong market interest, high demand, or high volatility. Traders can use tools such as CoinGecko or CoinMarketCap to track trading volume on various DEXs.
How To Buy Crypto With Bittime
You can buy and sell crypto assets in an easy and safe way via Bittime . Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappbeti.
To be able to buy crypto assets on Bittime , make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet . For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application.
Monitor price chart movements of Bitcoin (BTC) , Ethereum (ETH ), Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.
Read also:
What's that Arbitrage Trading?
DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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