HFT in Stock vs Crypto

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CryptoMode Crypto Trading Strategies HFT

With developments in internet space, we are seeing a boom of online stockbrokers that offer their services to millions of people across the globe. On the other hand, this development has birthed a new financial market, the cryptocurrency market. With millions of traders being active on these markets at any given time, people who wish to make big profits started to look at different means of exploiting the system and taking advantage of every opportunity presented to them. One of these so-called exploits that traders started to utilize is high-frequency trading, or HFT, that uses large computing power to analyze different markets and execute a big number of orders in mere seconds. But looking at the stock and crypto market, when using HFT there are some similarities, but also big differences, but what exactly are these differences?

HFT in crypto

Being a market with high volatility, HFT trading in cryptocurrencies is an attractive trading strategy that can be easily exploited. HFT in the crypto market is all about having a strong and fast algorithm that can analyze multiple markets across multiple exchanges in mere seconds. With the crypto market having high volatility, the possibility of multiple trends and favorable trade opportunities occurring multiple times throughout the day is really high. Traders use automated trading tools such as Bitcoineer to automate this process and make good profits. With these tools, traders are able to analyze and spot price movements before anyone does, and having a head start over the market can give traders a huge advantage. For example, if traders know that one exchange updates the price of a token before the second one does, HFT traders can use this information to track both markets and if it sees that price has changed and the trend has started on the first exchange, it can, in mere seconds, execute a big number of trades on the second exchange knowing that price is going to go in a certain direction. Of course, more goes behind this HFT, and it’s not just spotting price differences and movements across different exchanges.

HFT in stocks

When it comes to the stock market, HFT is as popular as in the crypto market, but potential profits are lower. Before making its way to the crypto market, High Frequency Trading was a hot topic in the stock market. Unlike the crypto market, where HFT is mostly used by retail traders, in the stock market, HFT is primarily used by institutional traders who execute an unimaginable number of trades in mere seconds and take advantage of this system. Being less volatile than the crypto market, HFT trading in the stock market might not be as profitable as in the crypto market. But with less profitability, HFT stock trading is a more safe trading option, but as we mentioned before this market is primarily dominated by institutional traders, meaning that retail traders might fail to take advantage of this system solely based on the fact that institutions will have more money and resources to build more strong and fast algorithmic trading tools. 

HFT stock trading also has received huge criticism. When HFT large number of orders are opened and closed in milliseconds, which sometimes creates strange signals on the market with no apparent reasons whatsoever. A good example of this is when in 2010 Dow Jones Industrial Average lost almost 1000 points and dropped 10% in just a few minutes and then regained most of it shortly after. Investigation showed that this was caused by massive HFT trade that triggered a big sell-off on the market. On top of this, most people who critique HFT say that while institutions are making huge profits, this is done at the expense of small retail traders.


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