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BIBTEX RIS

High frequency trading and the new market makers

2013; Elsevier BV; Volume: 16; Issue: 4 Linguagem: Inglês

10.1016/j.finmar.2013.06.006

ISSN

1878-576X

Autores

Albert J. Menkveld,

Tópico(s)

Corporate Finance and Governance

Resumo

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.

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