Concerns and Criticisms of High-Frequency Trading in Crypto Markets
In the previous two posts, I have written about high-frequency trading, and in this final post on this HFT topic, I will try to highlight some of the disadvantages of high-frequency trading. Everything has its advantages as well as its disadvantages. I hope most of those difficulties with HFT will come up in today's discussion.
Many people think that this trading has a role in market volatility i.e. it can make the market volatile. That is, rapid price movement and large transactions in the fastest time can turn the market from one side to another due to this training technique. Critics argue that HFT can contribute to short-term market volatility. In this way, rapid and automated trading can amplify price movements. This heightened volatility may pose challenges for less sophisticated market participants. Since the crypto market is already a volatile market and the process depends a lot on sentiment, such high volume can cause the market to turn more and more in a short period of time and make the market more volatile.
One of the major problems here is that equal access to the market cannot be considered when large volumes are executed in a short period of time. The advantage gained by HFT firms through low latency and co-location services has raised concerns about unequal access to market information. Smaller traders or investors without similar resources may be at a disadvantage in terms of execution speed.
One of the disadvantages I consider is that there may be some opportunity to manipulate the market through such high-volume trading. Concerns have been raised about the potential for market manipulation by HFT firms. A large number of orders are placed to create a false impression of market activity. It may be employed for manipulative purposes.
The biggest thing is that this matter will go through a complex system that will increase the complexity. The complex algorithms and strategies used in HFT can make the market less transparent. Moreover, the possibility of not being transparent cannot be completely ruled out here.
For those who do not understand the difficulties of today's discussion, I hope that by reading the previous two posts, the whole matter will come under your control. I am ending today's post here by thanking everyone.
~ Regards,
VEIGO (Community Mod)
Your article is very good. Nicely explained about Concerns and Criticisms of High-Frequency Trading in Crypto Markets. I hope you write articles like this in the future.Thank you.
Many Sundar has published a comment about crypto market and Many Sundar has given a detailed discussion. Thank you I understood a lot.
Well this is a concern really, in brokers I know most doesn't allow traders who uses HFT and often they are denied payout for this reason as it's believed it could be used for manipulating the market, thanks for sharing