High-Frequency Trading Strategies

74 Pages Posted: 25 May 2017 Last revised: 20 Feb 2019

See all articles by Michael A. Goldstein

Michael A. Goldstein

Babson College - Finance Division

Amy Kwan

University of Sydney Business School

Richard Philip

University of Sydney Business School

Date Written: December 27, 2018

Abstract

We document an important information channel driving HFT behavior. Examining the order book imbalance immediately before each order submission, cancelation and trade, we show high frequency traders (HFT) 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. However, by competing with non-HFT limit orders, HFT impose a welfare externality by crowding out slower non-HFT limit orders. Results from a natural experiment that increased market information access speeds further supports our findings.

Keywords: High-frequency trading, institutional traders, retail traders, limit order book

JEL Classification: G12, G28

Suggested Citation

Goldstein, Michael A. and Kwan, Amy and Philip, Richard, High-Frequency Trading Strategies (December 27, 2018). 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 Sydney Business School ( email )

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

Richard Philip

University of Sydney Business School ( email )

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

Register to save articles to
your library

Register

Paper statistics

Downloads
1,941
Abstract Views
5,524
rank
7,594
PlumX Metrics