Understanding the Impact of High Frequency Trading in Forex
Each day, billions of monetary units are exchanged on the foreign exchange currency market. FX trading is used to determine currency exchange rates across the world. While people have been trading currencies for thousands of years, modern technology has changed the way that many banks and individual investors do business. The following guide explores how high frequency trading (HFT) has impacted FX trading.
It can be extremely challenging to earn a profit when trading currency. In many cases, investors can lose significant sums of money. Exchange rates can be impacted by a variety of factors. This can include economic conditions, politics, weather, shipping conditions, piracy, technology advances and more.
Many investors use tools that enable trading through technical analysis. Technical analysis looks at how historical exchange rates can impact future exchange rates. In some cases, certain patterns can predict future price movements. Using specialized algorithms, computer programs can be used to forecast the direction of a currency movement.
In addition, computers can be used to automatically trade currency. While lots of early trading programs would execute only a few trades a day, modern programs are designed to complete a significantly larger number of trades. In some cases, programs can execute millions of unique trades every day.
Many HFT programs are installed in specialized data centres located near an exchange. Since the speed of execution is limited by the speed of light, many programmers and investors try to minimize the amount of time it takes for an order to be executed. This is possible by minimizing the amount of time it takes data to travel between a data farm and an exchange.
Most HFT programs are designed to profit from very small price differences in a currency. In many cases, a program will make a profit of only a few cents per trade. However, millions of these types of trades every day can yield a significant profit.
There are several significant risks when running a HFT program. While many of the world's best programmers work in HFT, it's possible for there to be many potential problems. For example, trade execution errors and delays can cause price instability in an exchange rate.
For example, the stock market experienced a flash crash in 2010. During this flash crash, automated HFT trading tools sold large quantities of stock. In seconds, many of the world's top stocks dropped significantly in value. This caused large financial losses around the globe.
About TradeTech FX:
TradeTech FX will specifically focus on electronic trading and the execution of FX spot, futures & options. The two first main conference days will include big picture plenary panels and keynote presentations The afternoons will be divided into 2 streams on trading platforms & trading technology and market structure & regulation.
The conference is expecting over 250 senior institutional FX trading professionals to attend including 100 senior buy side professionals including Heads of Trading, Heads of FX, Currency Managers, Portfolio Managers and Heads of Execution. The other delegates will be represented by global brokers and IDBs, specialist FX brokers, trading platforms, execution venues, connectivity, low latency, data management and CEP solution providers.