Anticipatory Traders and Trading Speed
51 Pages Posted: 16 May 2015 Last revised: 14 Dec 2017
Date Written: November 1, 2017
We examine whether speed is an important characteristic of traders who anticipate local price trends. These anticipatory participants correctly trade prior to the overall market and systematically act before other participants. They use manual and algorithmic order entry methods, but most are not fast enough to be high frequency traders (HFTs). Those anticipating price trends have impacts as if they are informed traders, while the case for anticipatory participants affecting the volume of other traders is rejected. A follow-up sample shows significant attrition in accounts and difficulty maintaining the anticipatory strategies. To identify anticipatory traders, we devise novel methods to isolate local price trends using order book data from the WTI crude oil futures market.
Keywords: Algorithmic traders, Manual traders, Cancellation rates, Order book, WTI crude oil futures, Local price trends
JEL Classification: G10, G13
Suggested Citation: Suggested Citation