What is high-frequency virtual currency trading? The principles and technical implementation points of high-frequency trading

High-frequency trading is one of the most technologically-rich and capital-intensive areas in the virtual currency market. It is a competition about speed, algorithms and cutting-edge technology that ordinary market participants are hard to get involved. Understanding how it works will help us to have a deeper understanding of the complexity and specialization of the current digital asset market. For most people, it is more important to recognize and understand this phenomenon than to try it yourself.

1. What is high-frequency trading (HFT)?

High frequency trading is a fully automated programmatic trading. You can understand it as a "100-meter sprint" in the trading world, rather than a "marathon". It does not care about the long-term value or macro trend of a virtual currency, but focuses on the ever-changing market order book. By obtaining information, making decisions and executing transactions faster than other market participants, high-frequency trading systems can complete thousands or even tens of thousands of transactions in one second, earning extremely meager profits from each operation, and ultimately accumulating less and more.

2. Virtual currency high-frequency trading security platform

1. Binance Binance:

2. Ouyi OK:

3. HTX Huobi:

4. Gate.io:

3. The core principle of high-frequency trading

1. Speed is the best

Speed is the lifeline of high-frequency trading. Here, competitive advantage is measured in milliseconds or even microseconds. Whoever can receive market data first and deliver trading instructions to the matching engine of the trading platform as soon as possible will be able to seize the initiative. This ultimate pursuit of speed is the most fundamental feature that distinguishes high-frequency trading from all other trading strategies.

2. Algorithm-driven

All high-frequency trading decisions are automatically made by pre-written complex algorithms. These algorithms will analyze massive market data in real time, such as order book depth, latest transaction price, buying and selling pressure, etc., and instantly generate trading instructions based on the set strategies (such as market making, cross-platform arbitrage, etc.). The entire process requires no manual intervention, ensuring the efficiency of decision-making and execution.

3. Accumulation of small profits

The profits of a single high-frequency transaction can be very small, sometimes less than one ten-thousandth. But its real power lies in its "frequency". By executing astronomical transactions in one day, these trivial profits can quickly accumulate into considerable amounts. This is a typical profit model that wins by volume.

4. Short-term holding

The holding time of high-frequency trading is extremely short, usually calculated in seconds, milliseconds or even microseconds. After the transaction is completed, the system will immediately look for an opportunity to close the position in reverse to lock in profits. The goal of a strategy is usually to maintain zero or very small positions at the end of the trading day, thereby avoiding overnight market risks.

4. Several key points of technology implementation

1. Physical location (hosting)

To minimize network latency, high-frequency trading institutions spend a lot of money to deploy their servers in the same physical data center as the trading platform server, which is called "colocation". The shorter the physical distance, the less time it takes to transmit data. Even if it is just a few microseconds, it may determine the success or failure of a transaction.

2. Top hardware

To realize high-frequency trading requires top-level hardware support. This includes servers equipped with the fastest processor (CPU) and large amounts of memory (RAM), as well as special network cards dedicated to ultra-low latency network communications. Some institutions even use customized hardware such as FPGAs (field programmable gate arrays) to burn transaction algorithms directly on the chip to achieve faster execution speed than software.

3. Low-latency network

In addition to the physical location of the server, dedicated high-speed network connections are also crucial. This usually means using dedicated line fiber and deeply optimizing the network protocol to ensure data is transmitted between the trading system and the platform at a speed close to the speed of light.

4. Efficient software and algorithms

The transaction program itself must be written in a high-performance programming language such as C and is optimized to ensure the execution efficiency of the code. The design of the algorithm must not only be accurate, but also be able to maintain stable and fast response while processing massive real-time data flows, so as to avoid missing opportunities due to system lag.

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