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High-Frequency Trading Strategies

Author

Listed:
  • Michael Goldstein

    (Babson College, Babson Park, Massachusetts 02457)

  • Amy Kwan

    (University of New South Wales, Sydney New South Wales 2052, Australia)

  • Richard Philip

    (University of Sydney, Camperdown New South Wales 2006, Australia)

Abstract

We examine the effect of high-frequency trading on market quality from the perspective of a limit order trader. By competing with slower limit order traders, high-frequency traders impose a welfare externality by selectively crowding out the most profitable limit orders. The order book imbalance immediately before each order submission, cancellation, and trade suggests that high-frequency traders strategically use limit order book information to supply liquidity on the thick side of the order book and demand liquidity from the thin side. This strategic behavior is more pronounced during volatile periods and when trading speeds increase.

Suggested Citation

  • Michael Goldstein & Amy Kwan & Richard Philip, 2023. "High-Frequency Trading Strategies," Management Science, INFORMS, vol. 69(8), pages 4413-4434, August.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:8:p:4413-4434
    DOI: 10.1287/mnsc.2022.4539
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    References listed on IDEAS

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    3. Yensen Ni, 2024. "Navigating Energy and Financial Markets: A Review of Technical Analysis Used and Further Investigation from Various Perspectives," Energies, MDPI, vol. 17(12), pages 1-22, June.
    4. Kou, Mingting & Yang, Yuanqi & Chen, Kaihua, 2024. "Financial technology research: Past and future trajectories," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 162-181.

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