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Hidden and Fast Liquidity - Hidden Orders and High-Frequency Trading

Author

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  • Lenczewski Martins Carlos Jorge

    (Institute of Banking and Finance, Finance and Management Collegium, Warsaw School of Economics,Warsaw, Poland)

Abstract

This work focuses on two of the more frequent practices in financial (especially capital) markets -the use of hidden orders and High-Frequency Trading (HFT). Although the use of each of them may reach 40% of the market turnover - even 60% for HFT, the actual knowledge on how they affect liquidity, prices, and market structure is still limited - especially if they are combined. The presence of both of these practices may look controversial, as it seems to be going in the opposite direction to what some of the goals that market regulators try to reach - transparency and increase of market liquidity. Additionally, their use suggests first, to give a clear advantage to some traders while not knowing the exact consequences to others. The aim of this paper is, by performing a literature study, to structure the current knowledge on a very specific topic in the area of market microstructure - the use of hidden orders and High-Frequency Trading. This paper tries to show the motivations, strategies, and eventual price effects behind hidden orders and High-Frequency Trading. It is also important to mention that this paper is based on scarce empirical research available (mainly for the US market) and as such, it is intended to encourage further analysis and research on this important topic.

Suggested Citation

  • Lenczewski Martins Carlos Jorge, 2020. "Hidden and Fast Liquidity - Hidden Orders and High-Frequency Trading," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 16(1), pages 27-35, March.
    • Handle: RePEc:vrs:finiqu:v:16:y:2020:i:1:p:27-35:n:1
    DOI: 10.2478/fiqf-2020-0004
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    More about this item

    Keywords

    Limit book; hidden orders; High-Frequency Trading;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G19 - Financial Economics - - General Financial Markets - - - Other

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