Short-term
trading strategies by their very HFT Shield nature are expected to produce
worthwhile returns over a brief investment duration. Here we will
look at three short-term trading strategies and try to give some
insight into the strengths and weaknesses of each style. Stock
options are the old standby of long-time traders. This market is and
has been well established with deep liquidity for many years and as a
result is the most popular vehicle for quick gains in the market. It
makes perfect sense what the strengths are of this platform - namely
the liquidity, high name recognition, and broad variety of assets to
buy and sell.
The
principal weakness of the stock option strategy is the high level of
competition on many of the assets (which is partially offset by the
low spreads on those stocks). The other problem you can run into with
less competitive securities is that spreads widen and finding a
profitable exit strategy becomes more difficult. Then there is also
the potential problem of automatic execution of barely in the money
contracts at expiration resulting in account destroying margin calls.
HFT
systems are server-based programs which rapidly buy and sell
securities using computer algorithms to predict market movements and
execute trade orders automatically. Many programs out there operate
so quickly in the exchanges that the order rate is measured in orders
per microsecond. The benefits of using a system like this are the
ability to front-run your trades ahead of other traders and computers
in the market. This generates tiny profits for each position bought
(and presumably immediately sold). Short-term trading strategies like
this truly are the gold standard when it comes to shortest duration.
The
problem with this type of style is that you are entering a
never-ending arms race with other traders and investment banks. There
will always be a bigger fish, with more resources, and better
programming. While no machine can win all the action, smaller capital
firms will increasingly get pushed to the margin where ultimately
activity is no longer justified by the returns.
The
last of the short-term trading strategies I bring up here is using
binary options. These types of contracts have become extremely
popular amongst low capital traders given their high yields and low
transaction costs. It is possible to trade profitably with as little
as $100 at some brokers. The drawbacks to using short-term trading
strategies involving binary options include small order sizes
(typically less than $3000 per trade), limited asset selection (only
the most liquid assets are traded), and limited means of exiting
trades once executed.
No comments:
Post a Comment