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The diversity of high-frequency traders

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  • Hagströmer, Björn
  • Nordén, Lars

Abstract

The regulatory debate concerning high-frequency trading (HFT) emphasizes the importance of distinguishing different HFT strategies and their influence on market quality. Using data from NASDAQ-OMX Stockholm, we compare market-making HFTs to opportunistic HFTs. We find that market makers constitute the lion's share of HFT trading volume (63–72%) and limit order traffic (81–86%). Furthermore, market makers have higher order-to-trade ratios and lower latency than opportunistic HFTs. In a natural experiment based on tick size changes, we find that the activity of market-making HFTs mitigates intraday price volatility.

Suggested Citation

  • Hagströmer, Björn & Nordén, Lars, 2013. "The diversity of high-frequency traders," Journal of Financial Markets, Elsevier, vol. 16(4), pages 741-770.
    • Handle: RePEc:eee:finmar:v:16:y:2013:i:4:p:741-770
    DOI: 10.1016/j.finmar.2013.05.009
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    High-frequency trading; Market making; Market quality; Volatility;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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