High‐Frequency Traders and Market Structure

12 Pages Posted: 8 Apr 2014

See all articles by Albert J. Menkveld

Albert J. Menkveld

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 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 that 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: high‐frequency traders, market fragmentation, market structure

JEL Classification: G10

Suggested Citation

Menkveld, Albert J., High‐Frequency Traders and Market Structure (May 2014). Financial Review, Vol. 49, Issue 2, pp. 333-344, 2014. Available at SSRN: https://ssrn.com/abstract=2422137 or http://dx.doi.org/10.1111/fire.12038

Albert J. Menkveld (Contact Author)

VU 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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