On a basic level, high-frequency trading can be defined as a system in which computer-based algorithms are developed and used to quickly move in and out of financial positions, allowing the owners of the algorithms to capture extremely small profit margins, oftentimes fractions of a cent per trade. Due to the fact that these trades are occurring at an incredibly fast rate of speed (it’s not uncommon for multiple trades to occur within a single second), algorithmic traders slowly accumulate wealth from the myriad of trades they are initiating. Although this system may, at first glance, appear to be harmless, recent events, most notably the May 2010 “Flash Crash”, illustrate the potential volatility of a marketplace driven by HFT.
For the average investor, the fast-paced nature of HFT is not a necessary ingredient for long-term financial success. In the world of precious metals trading, services such as Gold Price Direction are proving that a less-active trading platform can prove to be equally as lucrative for investors as more sophisticated algorithmic HFT tactics.
Additionally, the point should be made that algorithmic trading does not necessarily have to be equated with HFT. For example, the proprietary algorithmic platform used at Gold Price Direction has been designed to assess and deliver periodic “bearish” and “bullish” indicators to subscribers of GPD’s standard and premium subscription services. Quite the opposite of HFT, investors receive market indicators in roughly nine week intervals. Even using a “slow” method such as this, Gold Price Direction’s clients have been able to reap lucrative gains from a marketplace that has delivered its fair share of damaging blows to some of the world’s most respected and popular managed funds, many of which do rely on HFT.
In summation, the moral of this story could be thought of as follows: casual investors, or those who are dedicated to pursuing long or medium-term positions in the marketplace, will find that their goals are just as easily reached through more conventionally-paced trades as with HFT.
When using bullish and bearish indicators, investors can simply fund a position, adapt their strategies based upon the information, collect dividends and capital gains, and move on. As HFT is considered to have a much higher Sharpe ratio (broadly defined as a measure of risk factor) than other trading strategies, a more conventional approach, undertaken in collaboration with market indicators, can help build an additional layer of security and comfort for investors.
[box]Further information about the services and subscription packages offered at Gold Price Direction can be found at www.goldpricedirection.com.[/box]
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