© 2019 by Saroj Investments, LLC. 

High Frequency Trading(HFT) vs Smart Frequency Trading(SFT)

04.21.2017

High frequency trading(HFT) is "a type of algorithmic trading in which large volumes of shares are bought and sold automatically at very high speeds." The high frequency trading involves hundreds and thousands of these small duration trades resulting in high accumulative % gain.

 

But this type of trading is mostly possible for large investment or hedge funds. Why? This is why -

1) The transactions are in a very high volume which means millions of dollars worth of transactions 

2) High volume means a high commission to the exchange. This diminishes the net gain unless the transactions are in millions

3) To execute your orders faster, you need to be closer(electronically) to the exchange. The closer you are to the electronic exchange the sooner your transaction would be in queue for execution.  In high-frequency trading milliseconds can literally translate into millions of dollars.

 

This really means that if you are an independent trader or a midsize company/hedge fund – you are dependent on mostly 2 types of investments - 1) Technical investment 2) Long Term investments. Both are a great type of investments but they could also utilize multiple buy-sells to take advantage of the stock fluctuation.  

Example – Apple is an amazing long term investment. In 2016, the stock grew by 10%. But there were 49 days in 2016 when the stock grew 1% in a day and 40 instances when the stock fell by 1% in a day. A “smart algorithm” could take advantage of this fall (or gain) of the stock by shorting(or buying long) to get to a potentially net 90+% gain in a year. It does not have to be many transactions but needs to be “Smart” transactions. Sounds simple. Right? It might be hard for a human but might be achievable by an algorithm.

 

This is what we term as “Smart Frequency Trading” – Trades suggested by algorithms that buys long or shorts the stock and lasts for no more than a day resulting in high accumulative % gain.

 

 

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