We study a stylized model of High Frequency Trading in which traders equipped with private values and costs operate in a Continuous Double Auction. They can revise their orders with different frequencies and, hence, (only) some agents can repeatedly revise and resubmit orders in the same session, mimicking the behavior of high frequency traders. All agents attempt to maximize profits, learning which bid and ask is to be posted in a given configuration of the book. We analyze the efficiency of the resulting market and the way the surplus from trading is apportioned among agents as a function of the number and type of high frequency traders. We find that the presence of a small proportion of high frequency traders increases the overall efficiency of the market; secondly, the ones who have the chance to frequently revise the offers learn to extract a disproportionate fraction of the profits that ordinarily would belong to slow traders.

In whose best interest? An agent-based model of high frequency trading

PELLIZZARI, Paolo
2015-01-01

Abstract

We study a stylized model of High Frequency Trading in which traders equipped with private values and costs operate in a Continuous Double Auction. They can revise their orders with different frequencies and, hence, (only) some agents can repeatedly revise and resubmit orders in the same session, mimicking the behavior of high frequency traders. All agents attempt to maximize profits, learning which bid and ask is to be posted in a given configuration of the book. We analyze the efficiency of the resulting market and the way the surplus from trading is apportioned among agents as a function of the number and type of high frequency traders. We find that the presence of a small proportion of high frequency traders increases the overall efficiency of the market; secondly, the ones who have the chance to frequently revise the offers learn to extract a disproportionate fraction of the profits that ordinarily would belong to slow traders.
Advances in Intelligent Systems and Computing
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10278/3679014
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