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Liquidity Suppliers and High Frequency Trading

Protter, P (Columbia University)
Thursday 21 November 2013, 09:50-10:40

Seminar Room 2, Newton Institute Gatehouse


We use a liquidity model to study mathematically the effect of ultra high frequency traders, and to show how the markets have changed since ultra high frequency traders (UHFTs) burst onto the scene a half decade ago. In particular we show how they exploit the limit order book to ensure that most algorithmic traders trade at the limits of their market orders. The UHFTs pocket the liquidity profits that were traditionally the province of institutional traders, and in addition exploit their speed advantage and clever tricks to make the purchase of stocks via limit orders as expensive as possible, and the sale of stocks to be at the lowest price the institutional traders are willing to pay.

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