Crypto Exchanges Are Benefiting from Algorithmic Trading: Here’s How

Crypto Exchanges vs. Algorithmic Trading

Recently a lot of exchanges in the cryptocurrency field have announced serious plans to get the technology that allows them to connect to similar engines. This cross-connection is the norm when it comes to capital markets globally, and many benefits are expected for cryptocurrency exchanges as well. In this article, we will discuss what algorithmic trading means, as well as a series of terms that have a close connection to this field. Terms like HFT will become transparent, and we would like to show the advantage they bring.

High-Frequency Trading (Or HFT)

This trading type has been the center of some very sharp debates within a crypto exchange environment. The main argument from commentators was that it lacks precision. There are many different types of HFT. However, when concerning buying cryptocurrency, we should refer to various computer-operated trading strategies used to make high numbers of transactions in the fraction of a second.

Essentially, automated market creation and arbitrage strategies cause a lot more efficiency within the market. This is because information integrates into prices quicker and with higher efficiency. In this way bid spreads become narrower, discrepancies of prices decrease, and price discovery goes faster, and these things when cryptocurrencies are traded on different venues. Evidence suggests that the crypto market experience has a lot of benefits because of an HFT increase. You need only to look over the last two years to see that spreads have become narrower and much more stable.

Cloud-Based Exchanges and Data Center Matching Engines 

ErisX has new hardware and is running several data facilities across the country, in the same states that are maintaining major financial companies. This allows many traders and companies and various brokers to gain easy access to several markets fast and without a struggle. The technology can be added and used via an API. This technology type allows precise calibration, reliability, and speed in trading. Users can tweak the strategies and trading systems to perfection with several operations. Any market member that hosts infrastructures within data centers can benefit from precision tuning too.

The exchanges that are based in the cloud offer reduced control over the entire infrastructure. However, the results of these types of trades mean that people can’t get the same sort of connection speeds and strengths as data center type exchanges can. The highest technology data centers can offer an overall latency of 100 microseconds and still being able to handle millions of various commands at a time. The uptime of such transactions would be a whopping 99.99%. If one compares with a cloud-based exchange, the latency will be around 1000 times slower, and the algorithms will considerably reliable and consistent overall. Furthermore, an exchange working in the cloud may switch systems between various cloud centers, which will increase overall latency and inconsistency at any best crypto exchange.

It is all about being able to predict and understand latency, as well as have as little of it as possible when trying to manage risk and control pricing algorithms. People want the best quotes they’re able to get posted to exchange to benefit from the best liquidity. If a long round trip quote time is in place as a result of unpredictable, unmanageable, and high latency, people cannot react as quickly to rapid changes in the market. So, they won’t be able to benefit when buying bitcoins. As a result, people might opt for quoting a wider market and making their liquidity thinner — both of these are a massive problem and cost to any investor. 

Trading strategies

Crypto Exchange Conclusion

So, what can be said about these different methods in general? Does algorithmic trading help to choose which cryptocurrency to buy? Or what crypto price is the best to trade with? If you’re interested in cryptocurrency, we can easily conclude that strategies like high-frequency trading and automatic creation of markets can bring an increase in liquidity and quality in the marketplace. Exchanges that are hosted in data centers deliver a more powerful performance that contributes greatly to various trading techniques as they become less succumbed to risk-management and react with ease to all those rapidly-moving markets. The future is bright for exchanges operating on a data center and for the automation of strategies as well. Both currently provide optimum performance and consistency with plenty of perks for all users.

Are you always scouring the Internet and looking at bitcoin live price USD? What are your top 10 cryptocurrency trading tips? We’d love to hear more — please send us your comments below.

Author’s bio:

Thomas Glare has spent most of his working life in technology, having worked at some of the largest crypto exchange firms in the UK. After pursuing a life with 10+ years’ in the IT and technology sectors, he works part-time as a copywriter. He has written hundreds of pieces on everything from technology to top casinos.


Disclaimer: This article is written by Changelly’s guest author. The opinion of the publishing author may not always coincide with the opinion of Changelly editorial staff.

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