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High Frequency Traders and Market Structure

The Financial Review, special issue on HFT (Forthcoming)

18 Pages Posted: 17 Jan 2012 Last revised: 10 Jan 2014

Albert J. Menkveld

VU University Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Multiple version iconThere are 2 versions of this paper

Date Written: January 9, 2014

Abstract

The arrival of high-frequency traders (HFTs) coincided with the entry of new markets and, subsequently, strong fragmentation of the order flow. These trends might be related as new markets serve HFTs who seek low fees and high speed. New markets only thrive on competitive price quotes which well-connected HFTs can deliver as they can offload any nonzero position in any market they are connected to. HFTs may benefit or hurt market quality through adverse selection on price quotes, a technology arms race, or high-risk trading strategies.

Keywords: market structure, electronic trading, high-frequency trading

JEL Classification: G1

Suggested Citation

Menkveld, Albert J., High Frequency Traders and Market Structure (January 9, 2014). The Financial Review, special issue on HFT (Forthcoming). Available at SSRN: https://ssrn.com/abstract=1986892 or http://dx.doi.org/10.2139/ssrn.1986892

Albert J. Menkveld (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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