High Frequency Trading and the New-Market Makers

Arbeitspapier

This paper links the recent fragmentation in equity trading to high frequency traders (HFTs). It shows how the success of a new market, Chi-X, critically depended on the participation of a large HFT who acts as a modern market-maker. The HFT, in turn, benefits from low fees in the entrant market, but also uses the incumbent market Euronext to offload nonzero positions. It trades, on average, 1397 times per stock per day in Dutch index stocks. The gross profit per trade is €O.88 which is the result of a €1.55 profit on the spread net of fees and a €O.68 'positioning' loss. This loss decomposes into a €0.45 profit on positions of less than five seconds, but a loss of €1.13 on longer duration positions. The realized maximum capital commit- ted due to margin requirements is €2.052 million per stock which implies an annualized Sharpe ratio of 9.35.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Tinbergen Institute Discussion Paper ; No. 11-076/2/DSF21

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Financial Markets: General (includes Measurement and Data)
• Thema: high-frequency trading ; market maker ; multiple markets

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Menkveld, Albert J.
• Ereignis: Veröffentlichung
• (wer): Tinbergen Institute
• (wo): Amsterdam and Rotterdam
• (wann): 2011

Weitere Informationen

• Handle: http://hdl.handle.net/10419/86769
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ