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How Aggressive Are High-Frequency Traders?

Author

Listed:
  • Michael Goldstein
  • Björn Hagströmer
  • Lars Nordén
  • Dong Zhang

Abstract

We study order aggressiveness of market-making high-frequency traders (MM-HFTs), opportunistic HFTs (Opp-HFTs), and non-HFTs. We find that MM-HFTs follow their own group's previous order submissions more than they follow other traders’ orders. Opp-HFTs and non-HFTs tend to split market orders into small portions submitted in sequence. HFTs submit more (less) aggressive orders when the same-side (opposite-side) depth is large, and supply liquidity when the bid–ask spread is wide. Thus, HFTs adhere strongly to the tradeoff between waiting cost and the cost of immediate execution. Non-HFTs care less about this tradeoff, but react somewhat stronger than HFTs to volatility.

Suggested Citation

  • Michael Goldstein & Björn Hagströmer & Lars Nordén & Dong Zhang, 2014. "How Aggressive Are High-Frequency Traders?," The Financial Review, Eastern Finance Association, vol. 49(2), pages 395-419, May.
    • Handle: RePEc:bla:finrev:v:49:y:2014:i:2:p:395-419
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    File URL: http://hdl.handle.net/10.1111/fire.12041
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    Cited by:

    1. Oliver Linton & Soheil Mahmoodzadeh, 2018. "Implications of High-Frequency Trading for Security Markets," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 237-259, August.
    2. Breckenfelder, Johannes, 2019. "Competition among high-frequency traders, and market quality," Working Paper Series 2290, European Central Bank.
    3. Aldrich, Eric M. & Friedman, Daniel, 2017. "Order protection through delayed messaging," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2017-502, WZB Berlin Social Science Center.
    4. Zhou, Hao & Kalev, Petko S., 2019. "Algorithmic and high frequency trading in Asia-Pacific, now and the future," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 186-207.
    5. Fabrice Rousseau & Herve Boco & Laurent Germain, 2020. "High Frequency Trading: Strategic Competition Between Slow and Fast Traders," Economics Department Working Paper Series n296-20.pdf, Department of Economics, National University of Ireland - Maynooth.

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