High Frequency Trading and the New-Market Makers

Albert J. Menkveld

DOI:10.2139/ssrn.1722924

Corpus ID: 219393758

High Frequency Trading and the New-Market Makers

@article{Menkveld2013HighFT,
  title={High Frequency Trading and the New-Market Makers},
  author={Albert J. Menkveld},
  journal={Capital Markets: Market Microstructure eJournal},
  year={2013}
}

Albert J. Menkveld
Published 2013
Capital Markets: Market Microstructure eJournal

This paper characterizes the trading strategy of a large high-frequency trader (HFT). The HFT incurs a loss on its inventory but earns a profit on the bid-ask spread. Sharpe ratio calculations show that performance is very sensitive to cost of capital assumptions. The HFT employs a cross-market strategy as half of its trades materialize on a large incumbent market and the other half on a small, high-growth entrant market. Trade participation rates are 8.1% and 64.4%, respectively. In both… Expand

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