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.
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U2 - 10.2469/faj.v74.n2.1
DO - 10.2469/faj.v74.n2.1
M3 - Review article
AN - SCOPUS:85047567578
VL - 74
SP - 24
EP - 31
JO - Financial Analysts Journal
JF - Financial Analysts Journal
SN - 0015-198X
IS - 2
ER -