Abstract

http://ssrn.com/abstract=2183806
 
 

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Do Retail Traders Suffer from High Frequency Traders?


Katya Malinova


University of Toronto

Andreas Park


University of Toronto - Department of Economics

Ryan Riordan


University of Ontario Institute of Technology - Faculty of Business and Information Technology

November 18, 2013


Abstract:     
Using a change in regulatory fees in Canada in April 2012 that affected high-frequency quote submissions and cancellations, we analyze the causal impact of algorithmic trading activities on the trading costs and intraday returns of retail and institutional traders. Following the change, the number of trades, quotes, and cancellations dropped by 30% and market-wide bid-ask spreads rose by 9%. Trading costs for market orders, measured by bid-ask spreads, increased for institutions, but remained unaffected for retail traders. Both groups incur higher adverse selection costs on their limit orders. Retail traders’ intraday returns, especially from limit orders, declined, while institutions’ returns from market orders increased.

Number of Pages in PDF File: 42

Keywords: high frequency trading, message tax, market quality, retail traders

JEL Classification: G14, G18

working papers series


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Date posted: December 6, 2012 ; Last revised: January 10, 2014

Suggested Citation

Malinova, Katya and Park, Andreas and Riordan, Ryan, Do Retail Traders Suffer from High Frequency Traders? (November 18, 2013). Available at SSRN: http://ssrn.com/abstract=2183806 or http://dx.doi.org/10.2139/ssrn.2183806

Contact Information

Katya Malinova
University of Toronto ( email )
Toronto, Ontario M5S 3G8
Canada
HOME PAGE: http://individual.utoronto.ca/kmalinova/
Andreas Park (Contact Author)
University of Toronto - Department of Economics ( email )
150 St. George Street
Toronto, Ontario M5S3G7
Canada
HOME PAGE: http://www.chass.utoronto.ca/~apark/
Ryan Riordan
University of Ontario Institute of Technology - Faculty of Business and Information Technology ( email )
2000 Simcoe Street North
Oshawa, Ontario L1H 7K4
Canada
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