4 steps to move your algo-strategies to an HFT environment
Why would you need to move into an HFT environment if you don’t do HFT? There are a few key reasons why, and I would suggest to read my article on “Why speed is key on your trading decisions?” and maybe “The 10 Best Forex Strategies”
I’m not going to propose you to translate your current strategy to a High Frequency environment, but yes to use the execution advantages that low-latency environment will give you.
Execution costs and slippage in trading is the main cause of losing strategies. You can just put an average strategy into a collocated with cross connectivity, and you will experiment an improvement on profitability.
Of course, there are several things to take care before you start on this endeavor.
- Colocate your trading server. This will give you hardware-power and also direct connectivity to exchanges. Meaning that prices will be at your door as soon as they are out. You can check my article on “Exchange collocation — worth it or not?”
- Cross connectivity to exchanges. Whatever the instrument you trade you will have several venues to trade that same instrument, and you can get the best price available between them. But if the strategy is not that sensitive, you can have just one, and make sure that you will be executed at the desired price, minimizing slippages.
- Adjustments: having better execution time and market data, your strategy may need some changes (or may not), in order to run on this new environment. You may want to enter tighter limit orders, or if now you are using several venues (instead just one), you will want to have a smart algorithm to know where is better to execute your order(s).
- Software: if everything in place, you will need to take advantage of all these resources. A fast execution engine and market retrieval is key. Nothing different will happen if you keep using your old software/platform. You can read more on “How do I develop Trading Systems?” and “How to develop low-latency & HFT systems”
Additional advantages you will get:
- Backtesting and Research. You are going to have “real” input for your backtesting strategies. Creating the appropriated tools is nothing compared to having access to markets in collocated environments
- Analytics. You can run more and better analytics, based on detailed market data. If you run under different venues, even more data could be collected. This can lead you to improve the overall strategy.