Abstract
The electron microscope improved our vision by a factor of 1 million, enabling us to see atoms. In this study, I aim for a similar leap by examining trades executed in nanoseconds, a million times more precise than the oft-used milliseconds. This approach allows us to observe asset reallocations among rapid-fire “tradebots,” including those used by high-frequency traders (HFTs). Some 20% of trades occur in submillisecond clusters, which seem to have no price instability. Although submillisecond trade bursts are costly to non-HFTs in terms of adverse selection, these costs can be avoided.
| Original language | English |
|---|---|
| Pages (from-to) | 24-31 |
| Number of pages | 8 |
| Journal | Financial Analysts Journal |
| Volume | 74 |
| Issue number | 2 |
| Publication status | Published - 1 Jan 2018 |
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High-frequency trading as viewed through an electron microscope. / Menkveld, Albert J.
In: Financial Analysts Journal, Vol. 74, No. 2, 01.01.2018, p. 24-31.Research output: Contribution to Journal › Review article › Academic › peer-review
TY - JOUR
T1 - High-frequency trading as viewed through an electron microscope
AU - Menkveld, Albert J.
PY - 2018/1/1
Y1 - 2018/1/1
N2 - The electron microscope improved our vision by a factor of 1 million, enabling us to see atoms. In this study, I aim for a similar leap by examining trades executed in nanoseconds, a million times more precise than the oft-used milliseconds. This approach allows us to observe asset reallocations among rapid-fire “tradebots,” including those used by high-frequency traders (HFTs). Some 20% of trades occur in submillisecond clusters, which seem to have no price instability. Although submillisecond trade bursts are costly to non-HFTs in terms of adverse selection, these costs can be avoided.
AB - The electron microscope improved our vision by a factor of 1 million, enabling us to see atoms. In this study, I aim for a similar leap by examining trades executed in nanoseconds, a million times more precise than the oft-used milliseconds. This approach allows us to observe asset reallocations among rapid-fire “tradebots,” including those used by high-frequency traders (HFTs). Some 20% of trades occur in submillisecond clusters, which seem to have no price instability. Although submillisecond trade bursts are costly to non-HFTs in terms of adverse selection, these costs can be avoided.
UR - http://www.scopus.com/inward/record.url?scp=85047567578&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85047567578&partnerID=8YFLogxK
M3 - Review article
VL - 74
SP - 24
EP - 31
JO - Financial Analysts Journal
JF - Financial Analysts Journal
SN - 0015-198X
IS - 2
ER -