How Aggressive are High-Frequency Traders?

Abstract

We study order aggressiveness of market-making high-frequency traders (HFTs), opportunistic HFTs, and non-HFTs. We find that market-making HFTs follow their own group's previous order submissions more than they follow other traders’ orders. Opportunistic HFTs and non-HFTs tend to split market orders into small portions submitted in sequence. HFTs submit more (less) aggressive orders when the same-side (opposite-side) depth is large, and supply liquidity when the bid-ask spread is wide. Thus, HFTs adhere strongly to the trade-off between waiting cost and the cost of immediate execution. Non-HFTs care less about this trade-off, but react somewhat stronger than HFTs to volatility.

The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2365988

Keywords: high-frequency trading, HFT, aggressiveness, liquidity, volatility, diagonal effect

JEL Classification: G14, G18