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Interactions among High-Frequency Traders

Author

Listed:
  • Benos, Evangelos
  • Brugler, James
  • Hjalmarsson, Erik
  • Zikes, Filip

Abstract

Using unique transactions data for individual high-frequency trading (HFT) firms in the U.K. equity market, we examine the extent to which the trading activity of individual HFT firms is correlated with each other and the impact on price efficiency. We find that HFT order flow, net positions, and total volume exhibit significantly higher commonality than those of a comparison group of investment banks. However, intraday HFT order flow commonality is associated with a permanent price impact, suggesting that commonality in HFT activity is information based and so does not generally contribute to undue price pressure and price dislocations.

Suggested Citation

  • Benos, Evangelos & Brugler, James & Hjalmarsson, Erik & Zikes, Filip, 2017. "Interactions among High-Frequency Traders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(4), pages 1375-1402, August.
    • Handle: RePEc:cup:jfinqa:v:52:y:2017:i:04:p:1375-1402_00
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    Citations

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    Cited by:

    1. Nicola Anderson & Lewis Webber & Joseph Noss & Daniel Beale & Liam Crowley-Reidy, 2015. "Financial Stability Paper 34: The resilience of financial market liquidity," Bank of England Financial Stability Papers 34, Bank of England.
    2. Arumugam, Devika & Prasanna, P. Krishna & Marathe, Rahul R., 2023. "Do algorithmic traders exploit volatility?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    3. Benos, Evangelos & Sagade, Satchit, 2016. "Price discovery and the cross-section of high-frequency trading," Journal of Financial Markets, Elsevier, vol. 30(C), pages 54-77.
    4. Breckenfelder, Johannes, 2024. "Competition among high-frequency traders and market quality," Journal of Economic Dynamics and Control, Elsevier, vol. 166(C).
    5. Dodd, Olga & Frijns, Bart & Indriawan, Ivan & Pascual, Roberto, 2023. "US cross-listing and domestic high-frequency trading: Evidence from Canadian stocks," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 301-320.
    6. Arumugam, Devika, 2023. "Algorithmic trading: Intraday profitability and trading behavior," Economic Modelling, Elsevier, vol. 128(C).
    7. Abad, David & Massot, Magdalena & Nawn, Samarpan & Pascual, Roberto & Yagüe, José, 2025. "Message traffic and short-term illiquidity in high-speed markets," Emerging Markets Review, Elsevier, vol. 65(C).
    8. Rao, Amar & Dev, Dhairya & Kharbanda, Aeshna & Parihar, Jaya Singh & Sala, Dariusz, 2024. "Mineral policy and sustainable development goals: Volatility forecasting in the Global South's minerals market," Resources Policy, Elsevier, vol. 98(C).
    9. Geir-Are Karvik & Joseph Noss & Jack Worlidge & Daniel Beale, 2018. "The deeds of speed: an agent-based model of market liquidity and flash episodes," Bank of England working papers 743, Bank of England.
    10. Yan Chen & Peter Cramton & John A. List & Axel Ockenfels, 2021. "Market Design, Human Behavior, and Management," Management Science, INFORMS, vol. 67(9), pages 5317-5348, September.
    11. Chaboud, Alain & Hjalmarsson, Erik & Zikes, Filip, 2021. "The evolution of price discovery in an electronic market," Journal of Banking & Finance, Elsevier, vol. 130(C).
    12. Zura Kakushadze & Juan Andrés Serur, 2018. "151 Trading Strategies," Springer Books, Springer, number 978-3-030-02792-6, December.
    13. Brugler, James & Comerton-Forde, Carole, 2025. "Differential access to dark markets and execution outcomes," Journal of Financial Economics, Elsevier, vol. 171(C).
    14. Matteo Aquilina & Gbenga Ibikunle & Khaladdin Rzayev & Xuesi Wang, 2025. "The speed premium: high-frequency trading and the cost of capital," BIS Working Papers 1290, Bank for International Settlements.
    15. Klein, Olga & Song, Shiyun, 2021. "Commonality in intraday liquidity and multilateral trading facilities: Evidence from Chi-X Europe," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    16. Anagnostidis, Panagiotis & Fontaine, Patrice, 2020. "Liquidity commonality and high frequency trading: Evidence from the French stock market," International Review of Financial Analysis, Elsevier, vol. 69(C).
    17. Van Vliet, Ben, 2017. "Capability satisficing in high frequency trading," Research in International Business and Finance, Elsevier, vol. 42(C), pages 509-521.
    18. Ramos, Henrique Pinto & Perlin, Marcelo Scherer, 2020. "Does algorithmic trading harm liquidity? Evidence from Brazil," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    19. Sánchez Serrano Antonio, 2020. "High-Frequency Trading and Systemic Risk: A Structured Review of Findings and Policies," Review of Economics, De Gruyter, vol. 71(3), pages 169-195, December.
    20. Arumugam, Devika & Krishna Prasanna, P., 2021. "Commonality and contrarian trading among algorithmic traders," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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