• 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={European Finance eJournal},
  year={2013}
}

• A. Menkveld
• Published 13 May 2013
• Economics, Business
• European Finance 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 markets, about four out of five of its trades are passive, i.e., its price quote was consumed by others.