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<h2 id="header-0"><strong>Quick Takes:</strong></h2><ul><li>High-frequency trading is gaining attraction in the crypto world for its capability of generating profits in volatile markets.</li><li>High-frequency trading provides the crypto market with liquidity and regular traders with more market opportunities while posing risks of scams, illicit activities, liquidity problems, and high market volatility.</li><li>To formulate effective crypto HFT strategies, traders need to take into account the innate features of crypto trading, such as block time, gas fees, transparency, etc.</li></ul><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/4ced00585978412aa6ed12de923058d6.jpeg" /></p><h2 id="header-1"><strong>What is High-Frequency Trading?</strong></h2><p>High-frequency trading, or HFT in short, is a method of trading involving high-frequency financial data and sophisticated electronic trading tools to analyze markets and execute high-speed transactions. It originates from the traditional financial markets and is mainly adopted by large financial institutions due to its algorithmic complexity.</p><p>Just as its name reveals, HFT is all about trading speed. With various algorithms identifying the tiniest price discrepancies across multiple exchanges for the same asset, HFT traders can make a large volume of trades in the span of milliseconds, reaping profits derived from price changes before they are even noticed by the naked eye. Thus in a volatile or illiquid market, market participants can still count on HFT to generate profits.</p><h2 id="header-2"><strong>HFT in Crypto Space</strong></h2><p>High-frequency trading has been gaining popularity in the crypto industry for its capability to take advantage of market volatility and make profits, as the enormous volatility of the crypto market has indeed made itself an ideal match for HFT.</p><p>HFT can automatically ensure speedy crypto transactions in seconds with complex algorithms, saving traders from chasing after price trends and eliminating possible human errors. Retail crypto market participants are therefore given access to unprecedented market opportunities, and the crypto market is also pumped up with more liquidity.</p><h2 id="header-3"><strong>Risks of Crypto HFT</strong></h2><p>HFT also stirs up controversy in the crypto world, as it can bring real challenges to the crypto markets. To begin with, in the face of the algorithm-based HFT, there is a high chance for traders to run into faulty algorithms, scams, and even illicit activities like freak trade or ghost liquidity.</p><p>Also, there are problems with liquidity and market stability. Despite the fact that HFT is contributing to market liquidity by increasing trading volume through executing transactions, individual traders lacking the necessary technical support would not be able to seize the opportunity from such added liquidity.</p><p>Moreover, with the instant-reacting automated traders by the side, even the slightest market shock could lead to liquidity evaporation. An even worse scenario would be a flash crash, where automated traders massively sell off crypto in response to stressed market conditions.</p><p>After all, the market scale of cryptocurrency is not mature enough for the safe running of HFT. The whole crypto market is still facing volatility risk, as there is no essential regulation or governing authority to lead the way or warn of dangers. And with the complex HFT technique resting in the hands of institutional investors that take up a larger market share, it only takes one bad algorithm to kick off a market shakeout.</p><h2 id="header-4"><strong>Issues to Consider for Effective Crypto HFT</strong></h2><p>While speed is the key to the success of HFT in the traditional financial markets, things work rather differently in the decentralized crypto world where everything is recorded on the blockchain. Hence the need to consider the factor of block time, which is needed for miners or validators to verify transactions within one block and produce a new one. In this case, trading speed may not be the dominant factor in assuring a successful HFT strategy.</p><p>Some other blockchain-inherited factors to consider in mapping out effective crypto HFT strategies include transaction cost, a.k.a. gas fees. On top of the algorithmic logic, the associated cost for specific trades can often affect the economic viability of HFT transactions.</p><p>And with transparency being another native feature of the blockchain-based cryptocurrency, HFT trading in the crypto market is subjected to open scrutiny. Traders must create native strategies to deal with fierce competition and effectively compete with alternative strategies.</p><p>Compared with the relatively consistent traditional capital markets, the crypto world is on a fast evolvement with new protocols constantly coming into the market. What awaits HFT ahead is the challenge to formulate effective strategies and the opportunity to win a new arena.</p><p></p><h2 id="header-5"><strong>About Rangers Protocol</strong></h2><p>Rangers Protocol is the backbone of a Web3 engine for creating immersive Web3 applications. It minimizes the development difficulty for Web3 developers and maximizes the user experience of its Web3 applications. Rangers Protocol provides comprehensive infrastructures for efficient complex-app development, successful cross-chain and mass distribution, diverse in-app NFT and DeFi features, and more. Through its full EVM compatibility, strategic industry partnerships, and curated all-in-one IDE, Rangers Protocol supports AAA and indie developers to succeed in the Web3 world.</p><p><a href="https://rangersprotocol.com/" rel="noopener noreferrer nofollow">Website</a> |<a href="https://medium.com/rangersprotocol" rel="noopener noreferrer nofollow"> Medium</a> | <a href="https://twitter.com/rangersprotocol" rel="noopener noreferrer nofollow">Twitter</a> | <a href="https://t.me/RangersProtocol" rel="noopener noreferrer nofollow">Telegram </a>| <a href="https://discord.gg/jCDv2NbwFy" rel="noopener noreferrer nofollow">Discord</a> | <a href="https://rangersprotocol.gitbook.io/rangersprotocol/tokenomics" rel="noopener noreferrer nofollow">Gitbook </a>| <a href="https://sg.linkedin.com/company/rangers-protocol?original_referer&#61;https%3A%2F%2Fwww.google.com%2F" rel="noopener noreferrer nofollow">LinkedIn</a> | <a href="https://linktr.ee/rangersprotocol" rel="noopener noreferrer nofollow">Linktree</a></p>

What Makes High-Frequency Trading a Problem and Means to Solve It

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