Hit Ratio
Hit ratio refers to the proportion of trade requests or orders that are successfully executed relative to the total number of trade requests or orders submitted. It is a measure of how often a trading strategy or trading system achieves its intended trades.
The hit ratio is an important performance metric, especially for high-frequency trading and algorithmic trading, as it reflects the effectiveness and efficiency of a trading strategy.
Calculation:
Hit Ratio=Total Number of Trade Requests / Number of Executed Trades ×100%
Components:
Number of Executed Trades: The count of trade requests that were successfully matched and completed.
Total Number of Trade Requests: The total count of trade orders submitted to the market or liquidity provider.
Importance:
Strategy Evaluation: A high hit ratio indicates that a significant portion of the submitted trade requests are getting executed, suggesting that the strategy is effective in entering the market.
Cost Management: A low hit ratio can imply higher transaction costs due to the need to resubmit or adjust orders, leading to potential missed opportunities and increased slippage.
Market Liquidity: A high hit ratio often indicates good market liquidity and the ability of the trading system to interact efficiently with the market.
Risk Management: Helps in assessing the reliability of a trading system or algorithm and its ability to capture intended market moves.