WHAT IS INSTITUTIONAL TRADING?
WHAT IS INSTITUTIONAL TRADING? It consists of operating large volumes of orders with high frequency trading machines which are used by institutions through their traders known as market makers or market creators, who have large amounts of money, in addition to having full access to privileged information, achieving obtain the best prices to enter the market. These traders manage to influence the movement of the price, thanks to their accounts with almost unlimited money, diversifying their positions for sale or purchase, thus avoiding large losses and enhancing their profits. These institutions wage a "battle" among themselves to try to control the market, trying to drive the price towards their own individual interests, which is why they use high frequency trading as otherwise they could not survive within the industry. It is thanks to these technologies that they can carry out their trade, becoming sufficiently competent and sustainable over time, this means that they do not need to look at a candlestick chart or use trend lines, moving averages, stochastic oscillators, Bollinger bands, Relative Strength Index (RSI), Fibonacci Retracements, Ichimoku Cloud or Fibonacci Impulse and Retracements, among many other trading indicators. WHO ARE THE INSTITUTIONAL AND PROFESSIONAL TRADERS OR MARKET MAKERS A professional trader is one who works for certain institutions such as: insurance, NBFC, companies, mutual funds, banks, university funds, hedge funds, financial institutions, private equity funds, investment advisers, pension funds, financial , corporations, etc. By conducting a trade that benefits each of them greatly, these investors stand out for trading in high-probability assets, being in charge of opening and closing positions on behalf of the company, managing investment funds, allowing them to enter even with 3,000 or 5,000 contracts to the market, managing to influence price movements thanks to the fact that they have high-end technological equipment that analyzes each aspect of the market in real time, providing them with privileged information.
These market makers or well known as market makers who use high frequency trading (HFT) have enough technology that gives them the possibility and speed to position themselves in the market with the best prices available, in this way they have the ability to quickly update your quotes if market conditions change instantly. These professional traders manage to create liquidity within the Forex, stocks or indices market, thanks to the fact that their strategies are fully automated by high frequency trading. WHO MOVES THE FINANCIAL MARKETS? It is thanks to high-frequency trading algorithms that financial markets can be manipulated, today in the market there is enough margin for institutions through these technologies and their professional traders manage to perform almost 50,000 operations in just a period of time. time in which you and I took us to open and close our eyes, this has been achieved thanks to the use of powerful computers based and configured by high frequency algorithmic programs, thus allowing you to place thousands of buy or sell orders in so just microseconds. As mentioned above, they handle a totally different strategy from that of a conventional trader, called within the industry as high frequency trading (HFT) or in Spanish high frequency trading, assuming today more than 70% of the volume daily trading on wall street. These defenders of high-frequency trading argue that it is necessary to carry out their trade through this technology since by not doing so they could not survive within the industry, managing to lower their costs and liquidity and reducing inefficiencies in the formation of prices and execution. of orders. The most interesting thing about all this is that now they have set out to develop increasingly advanced and effective algorithms, which allow them to carry out a market execution with much more speed and efficiency, making these algorithms or as they call them "black boxes" operate with total autonomy.
Everything seems to indicate that its main objective is to earn 0.001 USD per order, but managing to execute millions of these per MINUTE, reducing the minimum time from when an order is transmitted until it is executed within the market (known in this industry as latency) . They have invested large amounts of money in the development of new infrastructures and communications, guaranteeing the speed and efficiency that their automatons (black boxes) need, placing them as close as possible to the market servers, since the closer their machines are to high frequency of the central servers of the stock market, will ensure a greater probability of success in your trade and consequently the gain of large amounts of money. WHAT IS HIGH FREQUENCY TRADING (HFT)? This is a technique within the financial industry where software is involved to create extremely specialized high-end algorithms in a type of negotiation where they can launch hundreds or thousands of buy or sell stock orders to the market in just thousandths of seconds. These specialized computers have the ability to gain access to the low latency of the internet by flooding the market with liquidity and have the ability to gather up-to-date market data in real time, allowing a totally unique strategy based on the data gathered. Today it has become the most important factor within this industry of decentralized and centralized assets, representing more than 70% of the volume and liquidity within the markets. One of the main characteristics of High Frequency Trading is the speed in decision making and order placement, ping, arbitrage and news-based trading, making highly accurate decisions in real time, thanks to the fact that they are continuously investing in technological improvements of faster and more advanced software, providing a high volume of trading in short periods of time, reducing spreads (difference between the purchase and sale price) allowing orders to go directly to your super computers without the need for intermediaries.