The fall of high-frequency trading: A survey of competition and profits

SERBERA, Jean-Philippe and PAUMARD, Pascal (2016). The fall of high-frequency trading: A survey of competition and profits. Research in International Business and Finance, 36, 271-287.

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Official URL: https://www.sciencedirect.com/science/article/pii/...
Link to published version:: https://doi.org/10.1016/j.ribaf.2015.09.021
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    Abstract

    We investigate high-frequency trading (HFT) strategies, inventorying the strategies already studied in the literature and introducing innovative strategies detected by private institutional research. To this end, we expand the existing classification, and we offer names for new categories. In a complementary but original manner, we introduce counter reactions from professional traders in response to HFT predatory strategies. These human answers reverse the usual framework of competition between high-frequency traders (HFTs) and low frequency traders (LFTs) and also widen this cadre to HFTs algos (predators) versus execution algos. This survey notes that a continuous increase in competition, between high-speed trading algorithms themselves through predatory strategies and from professional human traders adapting and building adequate responses has made the business more difficult and has led to shrinking profits for HFT. In the end, we believe that excessive competition and a change in the current regulation (favorable to HFT) could kill the goose that laid the golden egg.

    Item Type: Article
    Uncontrolled Keywords: Markets' micro-structure; High-frequency trading; Profitability; Competition; Markets' micro-structure; High-frequency trading; Profitability; Competition; 1502 Banking, Finance and Investment; Finance
    Identification Number: https://doi.org/10.1016/j.ribaf.2015.09.021
    Page Range: 271-287
    SWORD Depositor: Symplectic Elements
    Depositing User: Symplectic Elements
    Date Deposited: 02 Feb 2021 12:24
    Last Modified: 02 Feb 2021 12:24
    URI: http://shura.shu.ac.uk/id/eprint/27835

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