Forex Brokers for High Frequency Trading

The foreign exchange market is where international currencies are traded. The forex market is the largest and most liquid market in the world, with a daily turnover of over $5 trillion. High frequency forex trading is a type of automated trading that involves making a large number of trades in a short period of time. It is used by large investment banks, hedge funds and institutional investors. The strategy that engages powerful computers and servers and the fastest connectivity technology to trade large numbers of orders at extremely high speeds.

What is high-frequency forex trading?

High-frequency trading (HFT) is a forex trading strategy that uses computers and trading software to conduct a large number of forex transactions in fractions of a second. HFT systems use complex algorithms to quickly analyse the forex market and execute transactions based on conditions implementing within their conditions.

High-frequency trading can allow traders and investors to try and take advantage of arbitrage opportunities that last for fractions of a second. For example, say it takes 0.5 seconds for the New York market to update its prices to match those in London. For half of a second, euros will sell for more in New York than they do in London.

High-frequency trading is an extremely technical discipline and it attracts the very best candidates from varied areas of science and engineering – mathematics, physics, computer science and electronic engineering.

Why would I need an HFT forex broker?

High-frequency forex trading, along with trading large volumes, allows traders to try and profit from even the smallest of price fluctuations. It is primarily used by institutions who have the technology and capital available to try and make significant gains on bid-ask spreads.

Forex scalping strategies can benefit the most from high-frequency forex brokers because they often rely on tight spreads and quick exaction speeds which can have a significant impact on performance.

For instance, if you had a forex strategy that targeted 5 pips per trade and you did not use an HFT broker, you might get charged 2 pips spread, 2 pips commission and get 1 pip of slippage (delay) on your trade. This would mean you would need to make 5 pips just to break even!

If you were using a high frequency forex broker, you might only pay 1 pip spread, 1 pip commission and have zero slippage, which means you would already be up 3 pips compared to using a non-HFT brokerage firm.

Is high-frequency forex trading legal?

Yes, high-frequency trading is legal and there are currently no rules expressly against HFT. The majority of HFT traders employ the same forex strategies as other traders, just faster. Speed has always been an advantage and will always be an advantage in trading. Most high-frequency trading strategies are not fraudulent, but instead exploit minute deviations from market equilibrium.

However, when there is profit to be made, you will always find people who try to bend the rules. There are illegal high-frequency trading systems that cause market movements or prompt market activity that would not have happened had HFT traders not manipulated the market to their advantage.

Which forex broker is best for HFT trading?

Trading high frequency strategies is not completely impossible for the independent trader provided you have all of the required specialised skills and a large budget. However, for the vast majority of day traders it will be very impractical. Not only will you be competing head-to-head with big players with greater financial and human resources, you will probably not find a forex brokerage firm that specifically caters for HFT trading.

However, self-directed traders and investors can always open an account with an ECN forex broker which is perhaps the closest you can get to an HFT broker in a retail trading environment. An ECN broker is a financial intermediary that uses electronic communications networks (ECNs) to give clients direct access to other participants in equity and currency markets. They tend to have some of the tightest spreads and quickest execution speeds that you will find.

If you are using spread sensitive forex strategies that need the fastest possible execution speeds at all times, you can see a selection of our best ECN forex brokers in the table below.

Broker
Rating
Regulated
Min. Deposit
Founded
Max. Leverage
1.
IG Review

ASIC, BaFin, CFTC, DFSA, FCA, FINMA, FMA, FSA, FSCA, JFSA, MAFF, MAS, METI, NFA

$250

1974

1:200

76% of retail investor accounts lose money when trading spread bets and CFDs with this provider.
2.
IC Markets Review

ASIC, CySEC, FSA, SCB

$200

2007

1:500

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
3.
Pepperstone Review

ASIC, BaFin, CMA, CySEC, DFSA, FCA, SCB

$200

2010

1:400

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
4.
XM Group Review

ASIC, CySEC, DFSA, IFSC

$5

2009

1:888

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
5.
Global Prime Review

ASIC, FSA, VFSC

$200

2010

1:200

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
6.
Interactive Brokers Review

ASIC, CFTC, FCA, IIROC, NFA, SFC

$1

1978

1:200

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
7.
Dukascopy Review

FCMC, FINMA, FSA

$100

2004

1:200

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
8.
Swissquote Review

DFSA, FCA, FINMA, MFSA, SFC

$1,000

1996

1:100

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
9.
Darwinex Review

FCA

$500

2012

1:200

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
10.
Tickmill Review

CySEC, FCA, FSCA, FSC, LOFSA

$100

2015

1:500

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.

How to determine a high-frequency broker?

There are a few things to consider when choosing a high frequency broker. A few of the main things to look for are location, infrastructure, and strategies.

Location

The closer you are to the foreign exchange, the faster your trades will be executed. If you’re in the North Pole and you want to compete with people who are looking to take milli-seconds off their execution times, you might not be able to compete with an HFT broker.

Infrastructure

HFT involves a constant stream of data feeds, signal detection and processing, trade executions and order management. Most of these are developed from scratch by programmers or quants who are looking to improve their trading edge as much as possible. This can take time to build and cost a lot of money which is why HFT brokers can seem so inaccessible to the average retail trader.

Strategies

HFT firms and traders run a variety of forex strategies including statistical arbitrage, merger arbitrage, global macro, long/short, front-running, flash orders, iceberg and sniffer, etc. These are not the type of trading strategies that all brokers will support and may not even allow. If they are detected and you are not using a forex broker that supports HFT, you could see your account closed.

High-frequency trading pros & cons

Pros

  • Superior trade execution speeds
  • Lowest spreads on the market
  • Good for scalping and arbitrage strategies
  • Massive edge over other traders

Cons

  • Can be very expensive
  • Requires top hardware and software
  • Need excellent programming skills
  • Not easily accessible for retail traders

Conclusion: do I need an HFT forex broker?

If you are looking for the tightest spreads possible and fastest execution speeds, you might want to consider using a high-frequency forex broker. HFT is a type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools.

The problem is, HFT forex brokers are not readily available to retail forex traders so you cannot really use HFT strategies at home. It requires very expensive hardware located in very expensive data centres, very specialised programming techniques to reduce latency in the trading engine, and in general, very mathematical strategies. It also requires specialised relationships with institutional brokers.


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