Over the past decade, there has been a rapid rise in the adoption of speed-based, low-latency strategies – reliant on the ultra-fast consumption of market data and access to the fastest technology and infrastructure for success. High-Frequency Trading (HFT) refers to the use of technology to automatically execute high volumes of transactions within very narrow time frames. In order to achieve the extreme speeds required for this type of trading, immense computing power is required, enabling positions to be opened and closed within microseconds.

Electronic high-frequency trading groups that made their fortunes by being the fastest are finding it tougher to stay ahead of the curve as transactions unfold faster and faster, and the costs associated with low-latency infrastructure and market data continue to rise rapidly. In addition, reduced market volatility and volumes — essential elements for profitable trading — have dropped significantly. With these factors in mind, more and more firms trading stocks, commodities and currencies are realizing that investment wars are no longer feasible. They are now looking to compete on intelligence; deploying trading strategies that predict market movements over the course of minutes, hours and days, rather than micro-moments.

High-frequency trading systems enhance the liquidity of the foreign exchange market, but in many cases, this benefit comes with a cost. Given the assumption that the forex market is one of the truest forms of capitalism, it is important to have a process that generates revenue to traders that are willing to provide liquidity. The forex markets have experienced the dangers of allowing high-frequency trading systems, as adverse market conditions are met with enormous volatility, that can cause significant losses.

High-frequency trading allows large institutions to gain a small but notable advantage in return for providing vast amounts of liquidity into markets. The millions of orders that can be placed by high-frequency trading systems means those using them are lubricating the market and, in return, they are able to increase profits on their advantageous trades and obtain more favorable spreads. The nature of high-frequency trading satisfies both sides. Institutions can gain an advantage but one that is based on volume. The returns per transaction are tiny and therefore a huge number of trades must be completed to truly benefit which, in turn, ensures enough liquidity is being pumped into the markets.

Trading is not like it used to be, as the IT industry has changed the face of it forever. We cannot even imagine what it would be in the period ahead of us, but one thing is sure: If the last decade’s robots were following humans, in trading this is not the case anymore. Human traders and especially retail traders need to adapt and follow in the footsteps of these robots, or this HFT industry, as it is the only way to survive in such a competitive environment. This industry is changing so fast that it is virtually impossible for it to stay the way it is. What retail traders should do is to properly understand what moves markets, what the drivers in the Forex market are, and how profits can still be made in the face of all these adverse conditions.