High-Frequency Trading Strategies

63 Pages Posted: 25 May 2017 Last revised: 7 Sep 2021

See all articles by Michael A. Goldstein

Michael A. Goldstein

Babson College - Finance Division

Amy Kwan

University of New South Wales (UNSW)

Richard Philip

University of Sydney Business School

Date Written: September 5, 2021

Abstract

We examine the effect of high frequency trading on market quality from the perspective of a limit order trader. By competing with slower limit order traders, high frequency traders (HFT) impose a welfare externality by selectively crowding out the most profitable limit orders. The order book imbalance immediately before each order submission, cancelation and trade suggests that high frequency traders strategically use limit order book information to supply liquidity on the thick side of the order book and demand liquidity from the thin side. This strategic behavior is more pronounced during volatile periods and when trading speeds increase.

Keywords: High-frequency trading, institutional investors, retail investors

JEL Classification: G14; G15

Suggested Citation

Goldstein, Michael A. and Kwan, Amy and Philip, Richard, High-Frequency Trading Strategies (September 5, 2021). Available at SSRN: https://ssrn.com/abstract=2973019 or http://dx.doi.org/10.2139/ssrn.2973019

Michael A. Goldstein

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

Amy Kwan (Contact Author)

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Richard Philip

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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