High-frequency trading, often referred to as HFT, has grown in popularity since the 2008 global financial crisis, especially following the collapse of investment bank Lehman Brothers, which caused a liquidity crisis and huge volatility in financial markets.
While HFT is the most dominant in equity trading, it has spread to all market sectors, with a 2017 analysis suggesting up to 15% of daily Forex volume comes from high-frequency trading platforms. Our high-frequency trading review answers the most frequent questions to help traders understand what HFT is and evaluate whether they can explore it as a trading opportunity.
- Pepperstone, Great ECN execution on MT4/5, cTader, TradingView and Pepperstone proprietary platform.
- FP Markets, ECN trading with leverage up to 1:500.
- FXCM, No dealing desk execution + wide range of trading apps.
Best High Frequency Trading Brokers Comparison
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Regulators | ASIC, BaFin, CMA, CySEC, DFSA, FCA, SCB | ASIC, CMA, CySEC, FSCA | ASIC, CySEC, FCA, FSCA |
Year Established | 2010 | 2005 | 1999 |
Execution Type(s) | No Dealing Desk, NDD | ECN/STP | Market Maker, No Dealing Desk |
Minimum Deposit | |||
Average Trading Cost EUR/USD | 1.1 pips | 1.2 pips | 0.6 pips |
Average Trading Cost GBP/USD | 1.4 pips | 1.4 pips | 1.0 pips |
Average Trading Cost Gold | $0.15 | $0.16 | 0.30 pips |
Trading Platform(s) | Other, MetaTrader 4, MetaTrader 5, cTrader, Proprietary platform, Trading View+ | MetaTrader 4, MetaTrader 5, cTrader, Proprietary platform, Web-based | Other, MetaTrader 4, Proprietary platform, Web-based+ |
Islamic Account | |||
Negative Balance Protection | N/A | N/A | |
Get Started Visit Website75-95% of traders on margin lose | Visit Website | Visit Website |
Pepperstone
In Summary Great ECN execution on MT4/5, cTader, TradingView and Pepperstone proprietary platformPepperstone ranks amongst the most competitive high-frequency trading platforms. It maintains an excellent trading infrastructure and deep liquidity, resulting in fast order execution, a 99.94% fill rate, and no dealing desk intervention. It offers traders the MT4, MT5, and cTrader trading platforms, which support algorithmic trading, and proprietary Pepperstone Platform.
VPS hosting for low latency 24/5 Forex trading and API trading for advanced proprietary algorithmic trading exist at Pepperstone, which also has a volume-based rebate program, lowering Forex trading fees by up to $3 per lot.
Pros & Cons
- Excellent choice of trading platforms consisting of MT4/MT5, cTrader, TreadingView and Pepperstone Platform
- Market-leading MT4/MT5 upgrade package, Autochartist, and API trading
- Social trading support via Signal Start, MetaTrader Signals, Copy Trading by Pepperstone, DupliTrade
- Leverage of up to 1:400 depends on jurisdiction and superb trade execution
- Demo accounts have 60-day time limits
FP Markets
In Summary ECN trading with leverage up to 1:500Traders at FP Markets can execute algorithmic trading on MT4, which remains the market leader, MT5, and cTrader. It offers VPS hosting via a partnership with Liquidity Connect, ensuring trade execution in milliseconds and placing FP Markets among the leaders in high-frequency trading platforms. The core VPS trading infrastructure, which includes virtualization technology, is co-located in the Equinix New York data center.
FP Markets offers top-tier liquidity provided by regulated financial institutions for a diverse mix of market makers and therefore shows extremely competitive pricing, resulting in raw spreads from 0.0 pips on major currency pairs for a commission of $6.00 per lot.
Pros & Cons
- Choice of trading platforms and auxiliary trading tools
- Very competitive cost structure and excellent asset selection
- Low minimum deposit requirement and leverage of up to 1:500
- Well-regulated and trustworthy
- Availability of Iress geographically restricted
FXCM
In Summary No dealing desk execution + wide range of trading appsTheir trading environment and volume-based rebates make FXCM one of the most competitive high-frequency trading platforms. Traders can rely on MT4 or Trade Station for their algorithmic trading solutions, and FXCM supports API trading via a FIX API, Java API, and a ForexConnect API. Capitalise AI enables code-free algorithmic trading.
Adding to the trading advantages for HFT trading at FXCM are premium data streamlined for algorithmic trading solutions, a trade ‘tape’ updated in milliseconds on a trade-by-trade basis allowing real-time data to be used for trading decisions, and 24/5 support. High-volume traders benefit from a five-tier rebate program, which pays up to $3 per lot.
Pros & Cons
- Excellent choice of trading platforms with dedicated support for algorithmic trading
- Deep liquidity, transparent order executions, and monthly slippage statistics
- Low-cost commission-based cost structure with a volume-based rebate program
- Quality research and education via FXCM Plus
- Somewhat limited asset selection
What is High-Frequency Trading?
High-frequency trading is a demanding algorithmic market approach requiring powerful hardware and advanced algorithms to execute high volumes of transactions in the blink of an eye, something not possible for a manual trader. High-frequency trading platforms ensure HFT traders have an innovative trading infrastructure with co-location in Equinix data centers to reduce trade latency, as execution time often separates profitable from unprofitable HFT strategies.
Besides speed, high-frequency trading characteristics include high turnover rates and high order-to-trade ratios. High-frequency trading adds market liquidity but is also controversial due to its fast-paced approach that places some traditional traders at a disadvantage, as they cannot always trade the liquidity benefits and may lose out on opportunities to other machines.
Is High-Frequency Forex Trading Legal?
High-frequency Forex trading is legal, but Forex brokers may restrict it or lack the necessary infrastructure to enable and support high-frequency trading. Market makers may lack the technology, ability, and desire to cater to high-frequency trading platforms, if they are the direct counterparty to traders. Forex brokers who actively support scalping and algorithmic trading via VPS hosting and API trading can often meet the technology requirements to allow high-frequency trading.
While high-frequency trading is legal, including ‘ticker tape trading’, some aspects are illegal, most notably the practice of ‘quote stuffing’ or order book ‘layering’, which refers to HFT firms entering and quickly withdrawing large-volume orders in the hope of moving markets by stimulating interest within an order book and other market participants reacting to these orders.
Pros & Cons of High-Frequency Trading
Traders interested in high-frequency trading platforms and strategies should carefully consider the pros and cons to determine if they will meet the requirements to engage in successful high-frequency trading.
The pros of high-frequency trading include:
- HFT adds liquidity in the market and lowers trading fees.
- HFT Increases market accuracy as it promotes competition for bid and ask prices, it reduces price gapping and aids price discovery.
- No emotional decision-making driven by psychology.
The cons of high-frequency trading include:
- HFT can create volatility.
- HFT may result in “ghost liquidity” as the benefits are available for less than a second.
- Requires expensive, innovative technology, and advanced algorithms.
- High capital requirements can be a feature.
What Is Arbitrage?
Arbitrage in trading refers to the simultaneous buying and selling of the same or similar instruments in two different markets to profit from tiny discrepancies in pricing. High-frequency trading platform users may use arbitrage strategies to improve their trading results due to their ability to quickly calculate complex parameters, often this is powered by machine learning and artificial intelligence. The latter continues to push the boundaries and makes high-frequency trading more viable.
The price differences, often related to latency, may last less than a second, making co-location and high-speed execution essential. The technology enabling HFT also can be used to limit arbitrage, but still opportunities exist in the constant search for a trading edge and technological advancement.
Best Stockbrokers for High-Frequency Trading
High-frequency trading platforms started in equity markets, and demand exploded following the collapse of Lehman Brothers during the 2008 global financial crisis. Some analytics concluded that high-frequency trading accounts for up to 40% of daily equity trading volume, but which are the best stockbrokers for high-frequency trading depend on individual preferences.
Irrelevant to what traders prefer, the best stockbrokers for high-frequency trading will always provide the following:
- Algorithmic trading support, including VPS hosting and API trading.
- Cutting-edge trading infrastructure
- Deep liquidity pools
- Order execution in milliseconds
- Volume-based rebate programs
- Choice of assets
- Low trading fees
Can You Do High-Frequency Trading on a Mobile App?
Mobile apps are popular among Millennials, GenZ, and younger traders, but mobile apps have no place in a professional trading environment. High-frequency trading platforms have the highest technological requirements, making high-frequency trading on a mobile app impossible.
Besides the lack of computing power, despite high-end mobile phones challenging low-end laptops and computers, latency remains the primary issue. The arrival of 5G networks does not address the HFT latency requirements. Mobile apps are well-suited for copy trading, which does not require in depth market analysis but relies on portfolio management oversight via a few clicks.
Can You Do High-Frequency Trading with Forex?
The Forex market is the most liquid financial market globally, with turnover exceeding $7.5 trillion daily, dwarfing all other markets combined, this makes it ideal for high-frequency trading platforms. Algorithmic trading accounts for 80%+ of daily trading volume, and MT4, the leading Forex trading platform, is the most common of entry-level algorithmic trading solutions. It is the most versatile trading platform, and the MT4 API is an open-source API available for free.
Forex brokers that allow and support scalpers are the most compatible choice for HFT, as the requirements are similar, while the execution and strategies differ.
Is High-Frequency Forex Trading Profitable?
The profitability of high-frequency trading platforms and strategies depends on the user. While it is possible to generate profits, as evident by leading HFT firms, the setup demanded to successfully execute high-frequency trading is often the most complex of any approach to trade Forex.
More Forex brokers are deploying the necessary trading infrastructure and conditions, but traders face growing challenges related to sophisticated trading algorithms, where machine learning and artificial intelligence are becoming essential to gain an edge. The arrival of generative AI will make the development of advanced trading algorithms more accessible, but the challenge remains. HFT also has higher capital requirements due to investment in infrastructure and margin to support trading volumes and typically larger ticket sizes.
How Do I Get Started with HFT Trading?
HFT trading is not for beginners who neither understand how to trade nor meet the requirements to engage with high-frequency trading platforms. Seasoned traders who wish to venture into HFT should approach it from the two sides that make it profitable: a broker supportive of high-frequency trading and algorithms themselves that enable it. The former is the easiest of the two, as more brokers now cater to demanding HFT requirements.
High-frequency trading platforms must offer the following:
- Algorithmic trading
- VPS hosting
- API trading
- Deep liquidity
- Ultra-fast order execution
- Volume-based rebate programs
The algorithmic trading requirements for high-frequency trading present the biggest challenge. They are unavailable for purchase and require extensive development on an ongoing basis and coding skills, with machine learning and artificial intelligence at their core. Therefore, the capital requirements to build the HFT infrastructure prevent many traders and trading firms from entering the ultra-competitive high-frequency trading space.
What is the Best Forex Broker for High-Frequency Trading?
The choice of the best Forex broker for HFT boils down to trading requirements, but all high-frequency trading platforms must provide several core elements to ensure HFT traders can execute their strategies without undue issues:
- Algorithmic trading platforms, VPS hosting, and API trading
- Low trading fees with volume-based rebate programs, which can sometimes make the difference between a profitable day and a loss.
- An innovative trading infrastructure, deep liquidity pools, and ultra-low latency order execution via co-location in Equinix data centers, local to you and your broker, London and New York being the biggest.
Bottom Line
High-frequency trading has the most demanding trading requirements, as it relies on advanced algorithmic trading solutions with machine learning and artificial intelligence at their core. More brokers support high-frequency trading platforms, which can account for up to 40% of daily trading volumes, dependent on the market. High-frequency trading is legal but also controversial. The negatives are the fault of traders and their inability to deploy HFT trading solutions accurately, and not from high-frequency trading itself.
The technological, hardware, software, and capital requirements of high-frequency trading are significantly higher than other strategies, which does not necessarily magnify rewards equally.
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