Algos Gone Wild: What Drives the Extreme Order Cancellation Rates in Modern Markets?

49 Pages Posted: 30 Dec 2020 Last revised: 4 May 2021

See all articles by Marta Khomyn

Marta Khomyn

University of Adelaide

Tālis J. Putniņš

University of Technology Sydney (UTS); Digital Finance CRC; Stockholm School of Economics, Riga

Date Written: March 10, 2021


97% of orders in US stock markets are cancelled before they trade, straining market infrastructure and raising concerns about predatory or manipulative trading. To understand the drivers of these extreme cancellation rates, we develop a simple model of liquidity provision and find that growth in order-to-trade ratios (OTTRs) is driven by fragmentation of trading and technological improvements that lower monitoring costs. High OTTRs occur legitimately in stocks with high volatility, fragmented trading, small tick sizes, and low volume. OTTRs are usually within levels consistent with market making, but occasionally spike to levels that may indicate illegitimate trading such as spoofing.

Keywords: order-to-trade ratio, market fragmentation, regulation, liquidity, HFT

JEL Classification: G12

Suggested Citation

Khomyn, Marta and Putnins, Talis J., Algos Gone Wild: What Drives the Extreme Order Cancellation Rates in Modern Markets? (March 10, 2021). Journal of Banking and Finance, Forthcoming, Available at SSRN: or

Marta Khomyn (Contact Author)

University of Adelaide ( email )

University of Adelaide Bdg 10 Pulteney St, Level 9
Adelaide, 5000
0481314349 (Phone)

Talis J. Putnins

University of Technology Sydney (UTS) ( email )

PO Box 123
+61 2 9514 3088 (Phone)

Digital Finance CRC ( email )

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
+371 67015841 (Phone)

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