High-Frequency Crypto Trading (HFT) Strategies

Crypto is over 15 years old now, almost legal for it to drive a car in the US. What this means is that traders have had quite some time to try out different kinds of crypto trading strategies- most are twisted tales made up from traditional market investment strategies. However, the world of crypto gives these familiar plans quite the makeover. High-frequency crypto trading (HFT) is one such area.

The fun bit is that the high-frequency trading in crypto strategy makes use of the same volatility many conventional traders fear to make significant money. How does it work though? Let’s find out!

What is High-Frequency Trading in Crypto?

The name itself spells it out for you, but let’s look into the definition anyway:

In the conventional sense, high-frequency trading uses technology to execute a large number of trades in nanoseconds. Once specific parameters are laid out for an asset’s price, these algorithms are specially built to execute high-speed trades as the conditions are fulfilled. 

Now, let’s put it into the context of crypto. High frequency trading cryptocurrency is a hands-free thing, where you use specific algorithms, AI programs, and data feeds for several crypto exchanges to watch over the market and perform a great number of trades in seconds when specific price conditions are met. 

HFT setups can be altered and customized, of course. 

High-Frequency Trading in Crypto vs. Traditional Markets: How is it Different?

Well, it doesn’t take a genius to know that the main difference between the two lies in the trading environment utilized.

Here’s a quick nice table summarizing the differences between high-frequency crypto trading vs. HFT in traditional markets:

 

Attributes	HFT Crypto	HFT Conventional Markets
Environment	Happens on decentralized or centralized exchange platforms with decentralized assets.	Happens on the usual centralized exchange platforms.
Time Required	Some trades can take a while to get executed, as the block time varies between blockchains. For example, on the Bitcoin blockchain, the block-time can be 10 minutes, delaying transactions. Ethereum on the other hand can take between 15 seconds to a few minutes to execute transactions.	Time required is less, because while the decentralized environment waits for the entire network to reach consensus, centralized platforms and assets have no such requirement.
Transparency	Blockchains are transparent, which means everyone can see which orders you place for how much on blockchains like Bitcoin. This can be both a boon and a curse because the transparency, while guaranteeing better security, also makes HFT crypto vulnerable to issues like front-running attacks.	Low to zero transparency, so lower chance of attacks but also it’s easier to dupe you. What else do you expect from centralization in finance, really?
Transaction Expenses	Take Ethereum for example, gas costs for transactions can vary depending on the timing of transactions. So you can not always plan ahead when it comes to transaction fees.	More predictable, so you can plan expenses in advance.
Regulation	The world of crypto has less regulatory clarity around the world, the same issue persists for high-frequency crypto trading.	Your trades are better regulated.

Got all that? Good. Now time for some strategizing: what are some good ways to practice high frequency trading cryptocurrency in crypto? 

Strategies for High-Frequency Crypto Trading

There are several time-tested strategies you can use in high-frequency crypto trading:

• Arbitrage in Crypto: This is super fun, and all you have to take into account is the slight difference in the same crypto’s prices across different platforms. So basically you buy a crypto (say Bitcoin) from an exchange where it is priced at $53,865, and sell it on an exchange where it is valued at say $54,506. One such trade may seem trivial, but imagine hundreds of similar trades executed in seconds. Cool and devious, isn’t it?
• Scalping: Another strategy that benefits from small price changes in a day. Basically you buy and sell the same asset throughout the day, hoping to earn small profits as the price increases even by a minuscule amount. Again, the small water droplets add up to make an ocean. Well, at least a lake.
• Market Making in Crypto: This is again all about capturing small price shifts. You supply exchanges with crypto you own, so others have an easier time trading their own assets. This HFT crypto strategy allows you to profit from the difference between the ‘bid price’ or the price a buyer pays for a crypto, and the ‘ask price’ or the lowest price a seller is willing to give. You can place multiple limit orders on both buy and sell sides to earn from the aforementioned price difference. 
• Momentum Trading: This one is easy too, basically the HFT crypto algorithms track the current market sentiment and go with the flow to earn profits, and hone in on sharp up or downward movements. 

Pros vs. Cons of High-Frequency Trading in Crypto

Of course, your brain can not make your own decisions without looking at a pros and cons list. Once again a table for you to evaluate the advantages and disadvantages of high-frequency crypto trading:

Pros of HFT Crypto	Cons of HFT Crypto
Since you are using AI and specific algorithms for high-frequency crypto trading, there is zero chance of human errors, and decision-making is faster than you’d ever be capable of, allowing you to capitalize on more opportunities than ever.	Not a beginner-friendly way to trade, as you’d need to know the crypto market well first to program your HFT crypto setup right.
HFT crypto can take advantage of any market condition- regardless of upward or downward trajectory. Benefiting from volatility without caring for the direction is the best way to go in the crypto market.	There’s a notable upfront cost required to access the necessary equipment.
The profits are significant in comparison to the efforts you have to put in.	As you make numerous trades, the fee you have to pay is sizable as well.

Well, there you have it- the pros and the cons both. You’re now the best judge for whether high-frequency crypto trading is a you thing or not.

Keep reading the Delta Exchange blog for more detailed insights into the crypto market, and hit us up to try a derivative trade in crypto or two (or hundreds)!