The Profitability of High-Frequency Trading

Good Regulation, Bad Regulation

“…In this case, return will be negative. Moosa and Ramiah (2014b) demonstrate that there is no association between profitability and the length of the holding period and the frequency of trading. They test the hypothesis on the relation between the profitability and frequency of trading in the foreign exchange market and stock market using two different trading strategies conducted over holding periods with varying lengths of the holding period.…”

High‐frequency trading: Definition, implications, and controversies

“…High-frequency traders can consider tens or hundreds of stocks to utilize this strategy (Golub et al, 2013;Lhabitant & Gregoriou, 2015;Moosa & Ramiah, 2015). Accordingly, high-frequency traders will hunt for opportunities that arise during periods of temporary deviation and exploit them before they disappear (Moosa & Ramiah, 2015). Foucault et al (2017) argue that the effect from arbitrage activities could go either way: it can be beneficial or harmful, depending on the underlying cause of arbitrage opportunities.…”

“…This trading strategy is designed to make a profit from price disparities and temporary deviations in statistically significant relations. High‐frequency traders can consider tens or hundreds of stocks to utilize this strategy (Golub et al., 2013; Lhabitant & Gregoriou, 2015; Moosa & Ramiah, 2015). Accordingly, high‐frequency traders will hunt for opportunities that arise during periods of temporary deviation and exploit them before they disappear (Moosa & Ramiah, 2015).…”

“…This lack of consensus on the definition of HFT complicates research in this area and contributes to the various conclusions on the effects of HFT activity in the market. The lack of a precise definition of HFT also leads to confusion between HFT and other forms of trading activity-such as algorithmic trading (AT)-with HFT consequently being blamed for matters (e.g., the flash crash of 2010) that have little or nothing to do with it (Moosa & Ramiah, 2015).…”

“…Goldstein et al (2014) state that, naturally, HFT strategies are employed by proprietary firms, the majority of which are either broker-dealer proprietary trading desks (trading units within a firm that trades using its own money), hedge funds, or proprietary trading groups. This result is logical, due to the high costs involved in employing sophisticated technology and obtaining the big data to execute HFT strategies Moosa & Ramiah, 2015). Aldridge (2013) generally categorizes HFT strategies into three groups: (1) statistical arbitrage, also known as value-motivated strategies; (2) directional strategies, also known as informed trading; and (3) market making, also known as liquidity trading.…”