Advertisement

High-Frequency-Trading

High-Frequency-Trading Technologies and Their Implications for Electronic Securities Trading
  • Peter Gomber
  • Martin Haferkorn
Catchword

Delineation and Market Relevance of High-Frequency-Trading

High-Frequency-Trading (HFT) has become quite prominent in public and academia after the May 6th, 2010 “Flash Crash” and in the context of the recent financial crisis. However, the public discussion is mostly based on generalizations instead of a well founded research-based point of view, and the terminology of electronic trading is often used indiscriminately. Literature defines HFT as a subset of Algorithmic Trading. Therefore, and to foster the understanding of these terms, we first describe Algorithmic Trading. Based on this definition we will then specify HFT.

Algorithmic Trading in the broadest sense is the generation and submission of buy and sell orders by an algorithm (Prix et al. 2007, p. 1). An algorithm in this context is defined as a set of instructions which processes market data in real-time and submits orders to a single or multiple market places without human intervention. Narrow definitions require the...

Keywords

Trading Strategy Circuit Breaker Order Book Electronic Market Market Quality 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

References

  1. Aldridge I (2010) High-frequency-trading: a practical guide to algorithmic strategies and trading systems. Wiley, Hoboken Google Scholar
  2. Authority for the Financial Markets (AFM) (2011) High frequency trading: the application of advanced trading technology in the European marketplace. http://www.afm.nl/layouts/afm/default.aspx~/media/files/rapport/2010/hft-report-engels.ashx. Accessed 2012-04-18
  3. Australian Securities and Investments Commission (ASIC) (2010) Report 215: Australian equity market structure. http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rep-215.pdf/$file/rep-215.pdf. Accessed 2012-04-18
  4. Baltagi BH, Li D, Li Q (2006) Transaction tax and stock market behavior: evidence from an emerging market. Empirical Economics 31(2):393–408 CrossRefGoogle Scholar
  5. Brogaard JA (2010) High frequency trading and its impact on market quality. http://www.futuresindustry.org/ptg/downloads/HFT_Trading.pdf. Accessed 2012-04-18
  6. Cvitanic J, Kirilenko A (2010) High frequency traders and asset prices. http://ssrn.com/abstract=1569067 or doi: 10.2139/ssrn.1569067. Accessed 2012-04-18
  7. European Commission (2011) MiFID: Richtlinie über Wertpapierdienstleistungen. http://ec.europa.eu/internal_market/securities/isd/mifid_de.htm. Accessed 2012-04-18
  8. Gomber P, Arndt B, Lutat M, Uhle T (2011) High frequency trading. http://ssrn.com/abstract=1858626 or doi: 10.2139/ssrn.1858626. Accessed 2012-04-18
  9. Gomber P, Gsell M (2006) Catching up with technology – the impact of regulatory changes on ECNs/MTFs and the trading venue landscape in Europe. Competition and Regulation in Network Industries 7(4):535–557 Google Scholar
  10. Hasbrouck J, Saar G (2011) Low-latency trading. http://ssrn.com/abstract=1695460 or doi: 10.2139/ssrn.1695460. Accessed 2012-04-18
  11. Jovanovic B, Menkveld AJ (2011) Middlemen in limit-order markets. In: Proc 46th annual conference of the western finance association, Santa Fe Google Scholar
  12. Kirilenko AS, Kyle AA, Samadi M, Tuzun T (2011) The flash crash: the impact of high frequency trading on an electronic market. http://ssrn.com/abstract=1686004 or doi: 10.2139/ssrn.1686004. Accessed 2012-04-18
  13. Lattemann C, Loos P, Gomolka J, Burghof H, Breuer A, Gomber P, Krogmann M, Nagel J, Riess R, Riordan R, Zajonz R (2012) High frequency trading – costs and benefits in securities trading and its necessity of regulations. Business & Information Systems Engineering 4(2):93–108 CrossRefGoogle Scholar
  14. Madhaven A (2000) Market microstructure: a survey. Journal of Financial Markets 3(3):205–258 CrossRefGoogle Scholar
  15. Prix J, Loistl O, Huetl M (2007) Algorithmic trading patterns in Xetra orders. European Journal of Finance 13(8):717–739 CrossRefGoogle Scholar
  16. Security Exchange Commision (SEC) (2010) Findings regarding the market events of May 6, 2010. http://www.sec.gov/news/studies/2010/marketevents-report.pdf. Accessed 2012-04-18
  17. Umlauf SR (1993) Transaction taxes and the behavior of the Swedish stock market. Journal of Financial Economics 33(2):227–240 CrossRefGoogle Scholar
  18. Wissner-Gross AD, Freer CE (2010) Relativistic statistical arbitrage. Physical Review E 82:(5):056104–1–056104-7 CrossRefGoogle Scholar

Copyright information

© Springer Fachmedien Wiesbaden 2013

Authors and Affiliations

  1. 1.Chair of e-Finance, E-Finance Lab, Faculty of Economics and Business AdministrationGoethe University of Frankfurt am MainFrankfurt am MainGermany

Personalised recommendations