Analysis of Individual High-Frequency Traders’ Buy–Sell Order Strategy Based on Multivariate Hawkes Process

Abstract

Traders who instantly react to changes in the financial market and place orders in milliseconds are called high-frequency traders (HFTs). HFTs have recently become more prevalent and attracting attention in the study of market microstructures. In this study, we used data to track the order history of individual HFTs in the USD/JPY forex market to reveal how individual HFTs interact with the order book and what strategies they use to place their limit orders. Specifically, we introduced an 8-dimensional multivariate Hawkes process that included the excitations due to the occurrence of limit orders, cancel orders, and executions in the order book change, and performed maximum likelihood estimations of the limit order processes for 134 HFTs. As a result, we found that the limit order generation processes of 104 of the 134 HFTs were modeled by a multivariate Hawkes process. In this analysis of the EBS market, the HFTs whose strategies were modeled by the Hawkes process were categorized into three groups according to their excitation mechanisms: (1) those excited by executions; (2) those that were excited by the occurrences or cancellations of limit orders; and (3) those that were excited by their own orders.

Simulation study of foreign exchange market interventions using an extended dealer model

“…Financial market research is conducted in various fields such as economics, financial engineering, and econophysics, clarifying various properties of financial markets [1][2][3][4][5][6][7][8][9][10] . In recent years, algorithmic traders known as HFT (High-Frequency Traders) have been participating in financial markets, rapidly placing and canceling orders, thus significantly impacting the market [11][12][13] . Data in financial markets can be classified into three types: macroscopic, mesoscopic, and microscopic.…”