Abstract
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.
Original language | English |
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Pages (from-to) | 712-740 |
Journal | Journal of Financial Markets |
Volume | 16 |
Issue number | 4 |
DOIs | |
Publication status | Published - 2013 |