By the time you finish reading this sentence, the high-frequency trading robot has already completed 15 trades.
In the world of cryptocurrency, every second hides wealth opportunities that ordinary people cannot see. Just last month, a mysterious address turned a small amount of capital into $300,000 in just 52 days during Polymarket's 15-minute BTC rise and fall market. This inevitably makes me ponder: In this algorithm-driven new era, how should ordinary traders position themselves?
As an analyst who has been navigating the crypto market for many years, I am here today to unveil the mystery of these high-frequency trading strategies and share some practical insights suitable for ordinary people.
A war within milliseconds: How high-frequency trading harvests the market
The bot that has achieved great success on Polymarket seems to have a simple core strategy of buying Up and Down options at low prices in different time periods, ensuring that the average cost of YES and NO is below $0.99, thus locking in profits. But its real advantage lies in its execution speed: placing 15 orders in one minute, a speed unattainable by humans.
This high-frequency trading strategy essentially takes advantage of the micro inefficiencies in the market. When retail investors make emotional trades that lead to mispricing (Up dropping to 30¢ in panic, Down dropping to 25¢ in greed), the bot can quickly capture these fleeting opportunities.
High-frequency trading strategies from traditional finance have fully entered the cryptocurrency market. Professional firms like Jump Trading and DRW, with their strong technical capabilities, have become major liquidity providers today. They do not need to predict major trends but rely on speed and accuracy to accumulate profits from small price differences.
Analysis of the three core strategies of high-frequency trading
Based on my observations, cryptocurrency high-frequency trading mainly relies on three strategies to profit:
1. Market-making strategy
Market makers place orders on both the buy and sell sides, profiting from the bid-ask spread. They do not predict direction but rely on constantly adjusting order positions to avoid inventory risks. For highly volatile small coins, market makers' orders will be placed further away from the order book to mitigate risks.
2. Arbitrage trading
Profiting from price differences between different exchanges or trading pairs. Because the cryptocurrency market is decentralized across many platforms, the same asset may experience temporary price discrepancies, and high-frequency arbitrage algorithms can capture these opportunities before human traders react.
3. Instantaneous order book tracking
By monitoring imbalances in the order book, trades can be executed quickly. For example, when the number of buy orders significantly exceeds sell orders, the algorithm will quickly buy, anticipating a price increase.
Why is it difficult for ordinary investors to replicate this success?
Many people are eager to try after seeing the bot's performance, but I must pour a bucket of cold water: this type of strategy is not friendly to ordinary investors.
High-frequency trading requires ultra-low latency servers, hosted machines, fast data sources, and institutional-grade infrastructure. Additionally, exchanges generally adopt a tiered fee structure, where the highest tier accounts enjoy negative fee benefits, while ordinary users face higher trading costs.
More critically, when you see an opportunity, the bot has already completed the trade. This is known as 'adverse selection': the orders that ordinary investors can complete are likely to be losing ones, and the profitable opportunities have long been snatched away by algorithms.
Practical advice for ordinary traders
So, in this algorithm-driven market, how should ordinary investors respond? Here are some suggestions based on my personal experience:
Avoid trading during times of extremely low liquidity, as the impact of high-frequency trading is most pronounced during these periods.
Focus on longer time frames (such as 1 minute and above), avoiding microsecond-level competition dominated by high-frequency trading.
Consider combining low-frequency CTA signals with short-term strategies, using high win-rate low profit-loss ratios from short vol, layered with CTA's low win-rate high profit-loss ratios, which may yield better results.
Be patient; the market will always present opportunities for mispricing, but there is no need to chase every opportunity.
Conclusion: Finding your advantage in the era of algorithms
Although high-frequency trading has become an indispensable part of the cryptocurrency market, it does not mean that ordinary traders have no opportunities. Understanding the microstructure of the market is more important than blindly following the crowd.
As I often say: 'Know your opponent, but know yourself even more.' High-frequency trading firms have their technical advantages, but ordinary investors have advantages in flexibility and patience. In this increasingly institutionalized market, finding a strategy that suits your own pace is key to long-term profitability.
I hope this article is helpful to you! If you found it insightful, please follow @崎哥说币 #加密市场观察 $BTC
