High Frequency Automated Trading
The concept of automated trading has attracted rapidly growing interest in recent years. In certain markets, such as exchange-traded futures, it has already become an everyday fact of life. In others, such as interbank spot FX, the party is just beginning to get underway.
Irrespective of the specific market, a focus for this growing interest has been high frequency autotrading. While technological advances have certainly been a factor in this, another major driver has been the inexorable decline in transaction costs. This reduces the minimum acceptable average profit per trade, thus allowing trade frequency to be increased without degrading overall profitability.
Spreading the risk, smoothing the curve
One of the most important advantages of high frequency autotrading is ease of diversification. While diversification by market is widespread, diversification by timeframe and trading model have historically been less common. A high frequency automated trading environment makes it relatively straightforward to deploy the same (or differing) trading models across a portfolio of timeframes.
The benefits of time diversification in terms of reducing correlation (even when using the same basic trade system rules) can be striking.
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