Order Exposure in High Frequency Markets

Journal of Financial and Quantitative Analysis, forthcoming.

63 Pages Posted: 21 Nov 2017 Last revised: 9 Mar 2025

See all articles by Bidisha Chakrabarty

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Terrence Hendershott

University of California, Berkeley - Haas School of Business

Samarpan Nawn

Indian Institute of Management Udaipur; CFA Institute

Roberto Pascual

Universidad de las Islas Baleares

Date Written: February 20, 2025

Abstract

We examine hidden orders usage by algorithmic traders (ATs) and non-ATs. ATs extensively use hidden orders but of smaller size than non-ATs, who are the primary contributors to hidden volume. ATs’ relative share of hidden volume decreases with volatility, adverse selection costs, and the relative tick-size. Proprietary ATs (HFTs), who differ from agency ATs (AATs) in their information sets and potential gains from trade, hide orders to reduce competition for liquidity provision, whereas AATs use hidden orders to conceal information in their more informed orders and manage picking off risk. Finally, superior technology provides limited benefit for hidden order execution.

Keywords: Hidden orders, transparency, high frequency trading, order exposure JEL Classification: G11, G12, G14, G15, G24

JEL Classification: G11, G12, G14, G15, G24

Suggested Citation

Chakrabarty, Bidisha and Hendershott, Terrence J. and Nawn, Samarpan and Pascual Gascó, Roberto, Order Exposure in High Frequency Markets (February 20, 2025). Journal of Financial and Quantitative Analysis, forthcoming., Available at SSRN: https://ssrn.com/abstract=3074049 or http://dx.doi.org/10.2139/ssrn.3074049

Bidisha Chakrabarty (Contact Author)

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

Terrence J. Hendershott

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Samarpan Nawn

Indian Institute of Management Udaipur ( email )

Balicha
Udaipur, Rajasthan 313001
India

CFA Institute ( email )

915 East High Street
Charlottesville, VA 22902
United States

Roberto Pascual Gascó

Universidad de las Islas Baleares ( email )

Ctra. de Valldemossa km 7,5
Departamento de Economia y Empresa
Palma, Baleares
Spain
+34 971 17 13 29 (Phone)
+34 971 17 23 89 (Fax)

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