What is HFT? And Risks to consider before trading.
Hi doston, Angel One ke iss podcast mein aapka swagat hai. Aaj, hum high frequency trading ke baare mein baat karenge.
In simple words, high-frequency trading stocks trade karne ka aisa method hai jisme computer programs ka use hota hai. This is because high-frequency trading mein bohot zyada numbers mein orders process kiye jaate hain. Orders ke bade numbers aur repeating orders ko process karne ke liye strong computer programs bahut important hain. Ye programs complex algorithms ko use karke saare orders fulfill karte hain.
Needless to say, high-frequency trading is used mostly by hedge funds, investment banks and institutional investors.
High frequency trading mein successful hone ke liye timing aur speed bahut zaroori hai. Wo traders jinki execution speeds sabse fast hoti hain are more likely to be successful. High frequency trading mein turnover rates aur order-to-trade ratios bhi zyada high hotey hain.
Benefits
High-frequency trading ke bohot saare benefits hotey hain. Traders high-frequency trading use karke chote-chote price fluctuations se profit kar sakte hain. HFT se market ki liquidity badh jaati hai. Because trades are carried out faster and inka volume zyada hota hai, HFT se market mein competition bhi increase hota hai. Eventually, markets jo zyada liquid hotey hain, unme risk bhi kam hota hai kyuki aise market mein kisi bhi position ki dono side pe kaafi traders hote hain.
Aisi trading se institutions bid-ask spreads par achhe returns expect kar sakte hain. Algorithms that are used in HFT also scan a number of markets and exchanges. Aisa karne se traders ko aur opportunities mil sakti hain.
Risks
High frequency trading ek aisa topic hai jispar experts, finance professionals aur regulators ne kaafi debate kiya hai. Iska reason yeh hai ki high frequency trading ke kayi saare risks hotey hain.
Doston high frequency trading mein traders bahut chote timeframe ke liye apni position hold karte hain. This makes the risk-reward ratio very high compared to investors who use a long-term strategy. Aisa karne sse high frequency traders ek din mein bahut chote-chote profits banate hain. Lekin aisa karne se losses ka risk bhi badh jaata hai.
High frequency trading ka ek aur downside hai. Aisi trading se market mein "ghost liquidity" create hoti hai. Critics ka maanna hai ki although high frequency trading creates liquidity, it is not real. This is because securities are held with a large number of traders for only a few seconds. Aur jab tak ye security ek long term investor kharidta hai, saari perceived liquidity khatam ho chuki hoti hai.
Regulators maante hain ki high frequency trading ka market volatility aur crashes ke saath connection hai. Some regulators have also found that high frequency traders kayi baar market ko illegally manipulate karte hain. It has also been seen that institutional high frequency traders chote players ke expense pe bhi profit karte hain. High frequency trading se bade investment firms ko advantage milta hai aur long term investors suffer karte hain. Nayi nayi technologies ki wajah se bhi market volatility badh rahi hai. Jaise jaise ye technologies excel kar rahi hain, market crashes pe bhi inka impact nazar aa raha hai.
Europe mein kayi countries high frequency trading ko ban karna chahti hain. Aisi trading ke kayi aspects ko unethical ya illegal maana jaata hai. For example, computer programs jo algorithms ko hazaaro orders place ya cancel karne ke liye use kiye jaate hain, wo ek security pe price mein momentary spike bana dete hain. This is considered a deceptive and immoral practice.
Measures to avoid risks
Doston in 2016, Sebi proposed seven ways to regulate algorithms or high frequency trading. Normal market traders aur institutional players ke beech ke gap ko curb karna in propositions ka goal hai. Sebi ke discussion paper ke propostions mein first hai ki HFT orders mein ek resting time hona chahiye jo ki fleeting orders ko eliminate karne mein help karega.
Secondly, matching orders ek batch system mein collect, buy aur sell kiye jayenge for a particular period of time before they can be matched.
Third, order processing mein kuch milliseconds ka delay hoga jisse time sensitive trading strategies ko discourage kiya jayega.
Next, orders ki queue randomly ki jayegi every 1-2 seconds taaki trading speed iklauti strategy na ho. Order-to-trade ratio mein bhi upper limit lagai jayegi because HFT mein bade orders ke cancel hone ka chance zyada hota hai.
Sebi ka ye bhi proposition hai ki co-located servers aur dusre servers se aane wale orders ke liye alag alag queues honi chahiye. Finally, Sebi ka maana hai ki tick-by-tick data feed ko review karna chahiye. Iss feed ka access HFT users ke fee ke saath kar sakte hain lekin Sebi wants to give it a structure that can be accessed by all market participants.
Doston high frequency trading kaafi popular hai, lekin uske risks ki wajah se usko kafi regulations apply honge. As we learnt in this podcast, HFT can be considered not only unethical, but also illegal in some instances.
That’s all from today’s podcast!
Jaane se pehle, ek baat yaad rakhiye ga ke stock market investing mein risk hamesha rahega. This podcast has been made for educational purposes only and as an investor aapko apni khud ki research bhi karni chahiye.
Aise aur interesting podcasts sunne ke liye humein follow karein via youtube and other social media channels. Until then goodbye and happy investing!
Investments in the securities markets are subject to market risks. Read all the related documents carefully before investing.
