Algorithmic and High-Frequency Trading in Forex

Forex Trading is being revolutionized by algorithmic and high frequency trading in the world of forex. These new advanced strategies are based on computers and complex algorithms making quicker decisions than any human trader ever could. These methods that were once the exclusive domain of large institutional players are now quite affordable for retail traders, thanks to great platforms like MetaTrader 5 for Mac. By understanding high and algorithmic trading, traders can understand how these methods impact market dynamics and see the opportunities these represent for your own trading strategies.

Algorithmic trading is the practice of using computer generated instructions to automate the process of trading. The reason is that they use algorithms designed to follow specific rules and parameters and can spot opportunities that the human eyes cannot see in the market. They can simultaneously analyze very large volumes of data faster than humans can and act on information according to the trader’s predefined conditions. For forex traders, that might mean faster and more accurate entries and exits and subsequently locking profits when the market turns volatile.

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Algorithmic trading, while intriguing, takes the concept even further in the form of high frequency trading. Imagine having to run thousands, or in some cases, millions, of orders in the space of fractions of a second. Advanced technology allows high frequency traders access the market’s infrastructure directly in order to lessen latency and achieve superiority over other slower traders. Exploiting small price movements over very short periods is the characteristic approach behind this. Even though high frequency trading is mostly beyond the reach of most retail traders, technology is becoming more accessible, and some forex traders are using parts of the strategy as a means to gain an edge.

Algorithmic and high frequency trading has made the forex markets behave in a much different manner. This improves trading liquidity as traders easily purchase and sell currency pairs at prices they want. But these can also lead to heightened volatility – particularly during periods of market uncertainty when automated systems tend to move very quickly in response to breaking news or economic data releases. Understanding how these systems work can allow traders to know what to expect with the market and change their strategy accordingly.

MetaTrader 5 is becoming a promising environment of algorithmic trading, especially for those who intend to realize the creation and testing of trading robots, called Expert Advisors. With these automated systems they can be programmed in a specific strategy and have it execute the trade according to predetermined rules. Traders can use these backtesting features to back test their algorithms against historical data and optimize the algorithms before using in the live market conditions. Therefore, this functionality gives traders the ability to experiment with various strategies and without risking the real capital.

The forex landscape is being altered in terms of speed, efficiency and accessibility by algorithmic and high frequency trading. Although these methods may sound scary when you first hear about them, plenty of platforms like MetaTrader 5 for Mac allow automated trading to anyone from beginners to old hands. Algorithms play a key role in the market movements and with the help of the right tools, traders can execute trades that can have an edge in this highly competitive market.

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Matt

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Matt is Tech blogger. He contributes to the Blogging, Gadgets, Social Media and Tech News section on TechScour.

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