The term High-Frequency Trading (HFT) basically means “trading with an emphasis on speed”. A HFT systems can process information in under a second making it far quicker than a human. High frequency Forex trading is the big buzz word in currency markets at present - but is it a good strategy to use and how effective is it at making profits? Let's take a look at high frequency algorithm trading in more detail.

High-frequency trading simply means – the trader looks for a large-scale turnover of positions and aims to make a small return on each position and the positions, are not normally held overnight.

It comes in different forms to:

Its used for sentiment and news trading so when a piece of data or news comes out, a quick order is placed by the algorithm to get the order in ahead of the crowd and make a big profit.

Volatility trading is where the trader trades on relative price movement rather than absolute price movement with the aim of making make money on volatility, not necessarily on the movement of the currencies traded.

Arbitrage strategies, trade imbalances within markets and look to take advantage of re adjustment. Another strategy is short-term statistical arbitrage which trades pairs involving a broad range of currencies which are correlated and looking for opportunities.

Doesn't it all sound so clever?

Computers working in nano seconds to beat the market, and make huge profits in seconds but it doesn't work. The idea that sophisticated computer Forex trading systems beating the market is a myth. The word algorithm trading is a buzz nothing more and this Forex trading strategy has been around since markets began and its just been given a new name.

A Hyped Name for an Old Strategy

High frequency Forex trading is really day trading or scalping but it has caught the imagination of the public because it brings in the idea of automation beating the market.

Of course, it  appeals to a lot of Forex traders as its a "beat the market" or "holy grail strategy" although its pretty obvious, that you can't beat the market and markets don't move to any logic (just the odds) therefore applying science,technology in a market which trades on emotion is a waste of time.

The Advantage of Speed Does it Really Matter?

The idea that by getting into the market in a nano second and making a quick profit doesn't add up to me. With the cost of doing business in Forex trading, you not only have to make a profit quickly and get out, you also have to cover the transaction cost at the same time. High frequency algorithm trading gains looks like a great way t lose money, as all volatility in short term times frames is random and that's a fact.

Transaction Costs Kill

Anyone who is trading high volume and high leverage in short time frames where volatility is random, is never going to make money due to commission impact and this is common sense. This form of trading strategy, simply piles up huge commissions for brokers. Profits by there very nature in this form of trading a are small and never enough, to cover the inevitable amount of losing trades. Of course its loved by brokers and the reason why is obvious.

Beating The Market With Technology – A Losers Strategy

I hear institutions try it and sure it makes them a lot of money in commission which is the primary aim of a financial institution (not profits) and now, retail traders are trying it - but it's simply a good way to lose money.

The idea that science, mathematics and speed, will give you an edge in Forex trading in an odds market is ridiculous. Any retail trader thinking they can beat the market with it, should go and do something else – because high frequency trading is a losing strategy long term so consider the following fact before you try it...

A Simple Investment Fact Anyone Considering HFT Should Know

50 Years ago 90% of Forex traders lost and today the same ratio still lose and this is in spite of all the advances in technology we have seen from faster computers, to software with awesome number crunching power – the same ratio lose which shows that technology does not help you gain an edge with marketing timing of your trading signal.

We have had expert systems, artificial intelligence, neural networks and now we have high frequency Forex trading. These trading methods, are just efforts to beat the market but try it and you will lose your money - its as simple as that.