How Aggressive Are High‐Frequency Traders?

Abstract

We study order aggressiveness of market-making high-frequency traders (MM-HFTs), opportunistic HFTs (Opp-HFTs), and non-HFTs. We find that MM-HFTs follow their own group's previous order submissions more than they follow other traders' orders. Opp-HFTs and non-HFTs tend to split market orders into small portions submitted in sequence. HFTs submit more (less) aggressive orders when the same-side (opposite-side) depth is large, and supply liquidity when the bid-ask spread is wide. Thus, HFTs adhere strongly to the tradeoff between waiting cost and the cost of immediate execution. Non-HFTs care less about this tradeoff, but react somewhat stronger than HFTs to volatility.

The Economics of High-Frequency Trading: Taking Stock

“…Empirical studies on data samples with HFT identification generally echo the findings of AT studies. In particular, HFTs are more likely to add limit orders to the book when the spread is wide, and thus supply liquidity (Carrion 2013;Hagströmer, Nordén & Zhang 2014;Jarnecic & Snape 2014). Similarly, Yao & Ye (2015) find that HFT liquidity supply is larger for stocks for which the spread is constrained to be large because of tick size.…”

Computerized and High-Frequency Trading

“…Credit Suisse (2012) finds that long-term volatility in recent years remained within historical norms, while short-term volatility declined, concluding that markets are "not worse" for the presence of HFT. Hagströmer, Nordén and Zhang (2014) note that the "aggressiveness" of orders submitted varies by HFT firm and by market situations, "adhere strongly to the tradeoff between waiting cost and the cost of immediate execution," and that HFT firms react less strongly to recent volatility than do non-HFT participants. Moreover, Lepone (2011), Hagströmer andNordén (2013), and Bank for International Settlements (2011) provide global evidence that HFT firms have been active during both high-and low-volatility conditions, and that high-frequency traders have often been the primary providers of liquidity in periods of high uncertainty, as well as mitigating intraday pricing volatility.…”

Trading Patience, Order Flows, and Liquidity in an Index Futures Market

“…This is inconsistent with the assumption in Roşu (2009) that traders arrive randomly in the market. In real-time trading, however, there exist some traders, such as algorithm trading or high-frequency traders (see e.g., Hendershott & Rjordan, 2013;Hagströmer, Nordén, & Zhang 2013) and/or market makers, who do not arrive in the market in a random manner.…”