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Is Trading Fast Dangerous?

Author

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  • Foucault, Thierry
  • Moinas, Sophie

Abstract

The speed of trading has considerably increased in recent years, due to progress in information technologies and automation of the trading process. This evolution raises many questions about the effects of trading speed. In this chapter we discuss the findings of the growing theoretical and empirical literature on trading speed in financial markets. We argue that an increase in trading speed raises adverse selection costs but increases competition among liquidity providers and the rate at which gains from trade are realized. Thus, the effect of an increase in trading speed on market quality and welfare is inherently ambiguous. This observation is important for assessing empirical findings regarding the effects of trading speed and policy making.

Suggested Citation

  • Foucault, Thierry & Moinas, Sophie, 2018. "Is Trading Fast Dangerous?," TSE Working Papers 18-881, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:32372
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    References listed on IDEAS

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    Cited by:

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    3. Andriy Shkilko & Konstantin Sokolov, 2020. "Every Cloud Has a Silver Lining: Fast Trading, Microwave Connectivity, and Trading Costs," Journal of Finance, American Finance Association, vol. 75(6), pages 2899-2927, December.
    4. 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.

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