Does high intensity trading affect forex traders?
The short answer to the title of this article is: Yes. However, I am not sure if I really understand the rules of this game.
Perhaps everyone has seen in the documentaries that are shown on television one of the big mammals or a giant shark swimming while lying around while a number of small fish hover around waiting to get some crumbs when this giant feeds on a big fish. However, these small fish may themselves become part of the shark meal at some point. When it comes to trading foreign exchange, individual traders may also become an easy meal for Forex mounds. Indeed, if such people decide to enter the world of high intensity trades, they may swim in dangerous waters.
Trading is mainly based on information processing, both entry and exit. In the nineteenth century, the famous bank investor Baron Rothschild was asked why he could always invest in the right companies at the right time. His answer was simply: “homing pigeon.” In fact, the man was able to obtain information faster and more widely than others. Well, this was using nineteenth century technology. Now let’s move on to the twentieth century. I remember that when I was a commodity trader, I had to make long distance phone calls or even send telegraphs and then wait for several hours to get some important trading information. In today’s world, the homing pigeon has become digitally and flies at the speed of light.
High intensity trading strategies usually involve opening and keeping trades for very short periods, sometimes up to a few seconds. Computers dedicated to this type of trading are directly linked with the market to receive data flow and execute orders, as well as credit lines of major banks. The expenses of these transactions are negotiated, and the difference between the bid and ask prices is less than what any individual trader can find. Of course, this type of trading, which is characterized by extreme speed is suitable only for major players in financial markets such as investment funds and institutional traders.
Upcoming data is processed and analyzed and deals are executed via high-speed computers. Believe it or not, these algorithms collect data from thousands of sources, then define keywords and infer probabilities in short periods measured in microseconds. Even if the individual trader receives the same data at the same time, the HFT computers have absorbed this news, selected a trading center, executed the deal and closed it, achieving small profits even before the retail investor finished reading the same information. Behind these logarithms are some of the best minds in the world – physicists in particular – who specialize in new and evolving probability models. In fact, I can say that we are in the era of space trading.
It goes without saying that huge investments are required in infrastructure to develop special trading algorithms, provide high-speed computers, obtain market access and execute deals as quickly as possible. But it may not be so sinister as it might seem at first glance. We can even go further and say that traders with high intensity trade patterns are very similar to market makers and specialists in other stock exchanges. They provide liquidity and volatility – both are good for all traders, large and small alike. However, playing with them is not a good idea for small fry.
Thus it can be said that the best strategy for an individual forex trader is to stay in a clear area and use a different strategy. To compete, you must have some advantage, and therefore retail traders should not try to compete with their high-intensity counterparts. That is why they have to play their own game where they have some advantage. There are many other strategies that an individual investor can use with success. And do not worry about what is called manipulation in the market because the Forex market is so large that it is difficult for a person or party to manipulate it and there are a lot of crumbs for everyone. You should never think about competing with the major scalping traders unless you have the ability to afford the infrastructure and the bank credit lines until you are able to play this game.