High-Frequency Trading, Explained

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While still in its infancy, a few traditional HFT firms have begun offering digital assets to their clients. Even more, at least one cryptocurrency exchange is giving users the tools they need to get started.

In recent years, multiple traditional HFT firms have begun to get involved in decentralized assets. The biggest one is Cumberland Mining, a subsidiary of Chicago-based firm DRW. Other institutional companies getting involved include Jump Trading, DV Trading and Hehmeyer Trading. That being said, currently, there are not too many cryptocurrency exchanges that have the speed or tools built in to allow for effective HFT. There are a few options users can turn to, however. As mentioned, exchanges like Gemini and ErisX offer colocation, but others such as Coinbase and HitBTC provide colocation as well as specific tools for high-frequency traders. With APIs such as FIX and Streaming, these sites ensure that the speed of trade execution depends only on network delays, which is generally less than 1 millisecond.

By combining powerful software with on-site hosting, users potentially have everything they need to experiment with the general strategies outlined here. It also helps that some of these exchanges offer a demo trading mode, where users can set up and run their experiments with the same real-market data but without risking actual coins. Considering that most of the other options available are traditional financial firms, using a true digital asset exchange may be more appealing to cryptocurrency enthusiasts.

While high-frequency trading may not be for everyone, it can definitely offer new techniques that tech-savvy and adventurous traders may enjoy. It’s true that knowing and keeping up to date with regulations will be essential as the cryptocurrency space evolves. However, it is highly unlikely that HFT as a whole is going away anytime soon. There’s a lot more to learn, but with the right tools and techniques, anyone has the chance to employ this method.

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