High Frequency Trading and the New-Market Makers
Copyright policy )High Frequency Trading and the New-Market Makers
This paper characterizes the trading strategy of a large high frequency trader (HFT). The HFT incurs a loss on its inventory but earns a profit on the bid-ask spread. Sharpe ratio calculations show that performance is very sensitive to cost of capital assumptions. The HFT employs a cross-market strategy as half of its trades materialize on the incumbent market and the other half on a small, high-growth entrant market. Its trade participation rate in these markets is 8.1% and 64.4%, respectively. In both markets, four out of five of its trades are passive i.e., its price quote was consumed by others. © 2013 Elsevier B.V.
- Tinbergen Institute Netherlands
- Duisenberg School of Finance Netherlands
- School of Business and Economics, Finance Netherlands
- University of Amsterdam Netherlands
- Vrije Universiteit Amsterdam Netherlands
SDG 17 - Partnerships for the Goals, ddc:330, high-frequency trading, market maker, multiple markets, high-frequency trading, market maker, G10, multiple markets, jel: jel:G10
SDG 17 - Partnerships for the Goals, ddc:330, high-frequency trading, market maker, multiple markets, high-frequency trading, market maker, G10, multiple markets, jel: jel:G10
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