High Frequency Trading Vs. Swing Trading
- High-frequency trading is a strategy used by professional traders. This type of trading involves advanced software programs that analyze the market and use algorithms to determine when to trade. In high-frequency trading, a computer might place hundreds of trades in a single second. The purpose of this type of trading is to realize very small profits and do it thousands of times every day. Many hedge funds use this type of strategy as it can provide exceptional returns.
- Swing trading is a type of trading strategy that involves holding positions for a longer period. When you get into a swing trade, you intend to ride out the momentum of a particular security. This could take you a day, a week or, in some cases, a month. The goal of swing trading is to profit by taking relatively low-risk trades.
- One of the key differences between these two types of trades is who uses them. With high-frequency trading, you have to be a professional trader or involved in a hedge fund of some kind. This type of trading has to be done by an advanced computer and software system. Most individual traders do not have access to this type of technology. On the other hand, both institutional and individual traders use swing trading strategies successfully.
- While swing trading is a shorter-term method than buying and holding a stock, it is significantly different from high-frequency trading. High-frequency traders are only concerned about very short-term movements in the market. A swing trader is interested in short-term movements but not on the scale of a high-frequency trader. Swing traders do not necessarily have to sit in front of the computer screen and watch prices all day or use a computer program to do it for them. They can place a trade and then check on it periodically to gauge progress.