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Is high frequencey trading beneficial to market quality?

Publisher
Markets Algorithmic trading Market quality Australia
Resources
Attachment Size
download linkapo-nid66362.pdf 1.39 MB
Description

This report discusses how high frequency trading (HFT) has changed the dynamics of the market and whether traditional academic measures of market “quality” are relevant in the new world of electronic trading. Using existing measures of market quality, which were designed over 20 years ago, much of the academic literature suggests HFT is beneficial for market quality. However, a closer examination of HFT reveals that the results may not be so beneficial and that many of these metrics are no longer applicable. This paper presents new metrics for market “quality”, which suggests that with the growth in HFT the probability of institutions getting orders filled has fallen and the time required to achieve a fill has increased. Additionally HFT trades tend to supply liquidity on the thick side of the order book, where it is not needed.

Publication Details
DOI:
10.4225/50/583f48440b16e
Access Rights Type:
open