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Algorithmic And High-Frequency Trading

Author

Listed:
  • Domagoj Sajter

    (Faculty of Economics in Osijek)

Abstract

Today the largest portion of the trading volume at the most developed financial markets in the world – about three quarters – belongs to high-frequency trading. This paper examines this modern (r) evolution, and this historical transition at the largest financial markets in the world, its course and key terms: algorithmic and high-frequency trading. A crucial shift is occurring in the structure of financial markets; with complex and highly sophisticated ICT systems now deeply embodied in their composition. Price inefficiencies migrate into the market microstructure, and are exploited using paradigms which import new terms into classical vocabulary of finance; terms such as low latency, colocations, icebergs, etc., some of which are explained in this paper. Complex issues arise, amongst them the one about bifurcation of market participants. The paper also presents results of the survey carried out among Croatian financial and investment practitioners in early 2011, which shows that until recently Croatian financial experts knew little about these relatively new tendencies.

Suggested Citation

  • Domagoj Sajter, 2013. "Algorithmic And High-Frequency Trading," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 22(1), pages 321-336, june.
    • Handle: RePEc:avo:emipdu:v:22:y:2013:i:1:p:321-336
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    More about this item

    Keywords

    Financial markets; algorithmic trading; high-frequency trading;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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