Nicholas Pratt
Nicholas Pratt

High Frequency FX where trading opportunities meet new technology

Opportunity is essential to any trading strategy but, as Nicholas Pratt explores in this article, what sets high frequency trading apart is the speed at which these opportunities are discovered and the speed at which the resulting trades are executed. All of this has been made possible by technology, both the provision of it and the lack of it, for it is the disparity in the extent and sophistication of technology that first presented the kind of opportunities that saw high frequency trading blossom in the FX world.

The fact that some liquidity providers are slower in their pricing than others creates anomalies that opportunistic traders can seize on. Inefficiency lies at the very root of any arbitrage strategies. But over time these inefficiencies have been ironed out as technology becomes more ubiquitous, regulation seeks to restore order and market structure looks for stability.  So how has the high frequency trading world adapted? Are the opportunities of the last five to ten years rapidly fading, never to be seen again or will new opportunities arise as new technology is developed. Furthermore, will the FX market, which was slower to adopt high frequency trading than the equities market, actually provide more long-term opportunities for arbitrage-based strategies due to its over-the-counter nature and various idiosyncrasies? Market structure Certainly some of the issues facing high frequency traders in the FX market are a result of the inherent differences in market structure in comparison to other asset...continued

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