• Fri. Jun 21st, 2024

High-Frequency Trading in Crypto: What You Should Know

Crypto Contract trading

Crypto Trading

It is important for you to take advantage of all opportunities at your disposal, and you might be interested in high-frequency cryptocurrency trading. This is something that has been around on the traditional stock market for a long time, and you rely not only on market analysis but also on technical analysis.

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At the same time, you need to have a strong understanding of the concepts if you want to maximize your yields. What are some of the most important points we need to keep in mind regarding high-frequency cryptocurrency trading? Take a look at a few important points below, and make sure you understand the concept of maximum extractable value.

Blockchain and MEV

Blockchain technology is the main underpinning of cryptocurrency. It allows transactions to take place between two separate parties without having to worry about an intermediary. By cutting out the middleman, new opportunities are available. Depending on the consensus method, cryptocurrency transactions can take a few minutes or a few hours.

Before a transaction can be added to the blockchain, it is held in a publicly visible waiting area. Then, it will sit there until a validator or miner decides to create a block using that information. The block has to be accepted by the various nodes of the network following either the proof-of-stake or proof-of-work concept.

When a transaction is sitting in the pool, waiting to be processed, you can profit from it by including (or excluding) transactions in a block. That is where the maximum extractable value (MEV) comes into play.

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It essentially refers to an invisible tax that it is possible for miners to collect from users.

How MEV Works

Essentially, a miner will try to move around certain transactions when they are in the process of creating a block for the blockchain. Miners can see all of the contract codes that they run, and the order in which they run certain transactions is up to the miner.

By changing the order of the transactions, it might be possible for miners to generate more revenue. Sometimes MEV isn’t even completed by miners. On Ethereum’s proof-of-stake system, MEV transaction ordering is done by separate actors known as block builders and is delivered to validators via software known as MEV-boost.

Every unique blockchain’s consensus mechanism means that the practice of MEV is slightly different across blockchains.

Even though it may take a bit of practice to figure out how to take advantage of this opportunity, there are several common tactics that people use. For example, some people will use bots to search for the most profitable transactions in the pool.

There are other people that use a sandwich attack to place a trade right before and right after a large pending trade to take advantage of the price change. These are high-frequency methods that miners can use to make sure they generate as much money as possible from each transaction.

As more people learn about this tactic, it will become more common, so it is important for anyone interested in cryptocurrency to understand the basics of how this works.

Take Advantage of Everything the World of Crypto Has To Offer

Clearly, there is a lot that you should keep in mind, but there are plenty of opportunities available. If you can apply these concepts, you can maximize your yield and boost your revenue, even if a turbulent market. Remember that this is not necessarily something that you need to go through on your own.

There are plenty of educational resources available, and the more you practice these concepts, the better you will be able to apply them. Cryptocurrency is a great way for you to diversify your investments, and MEV can help you stay one step ahead of the rest of the market.

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Kevin Moore - E-Crypto News Editor

Kevin Moore - E-Crypto News Editor

Kevin Moore is the main author and editor for E-Crypto News.