Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

HFT Study Pulls Back the Veil and the Bride is Ugly

admin by admin
December 6, 2012
in Uncategorized
0
0
SHARES
17
VIEWS
Share on FacebookShare on Twitter

Econintersect: A report still in draft form written by two professors and a CFTC (Commodity Futures Trading Commission) economist presents detailed analysis of bride-uglySMALLtrading data by high-frequency trading  (HFT) firms.  The report details the study of the market by examination of specific trades.  One conclusion is that because HFT that reduces market liquidity (classified as “aggressive trading”) is more profitable than HFT which increases liquidity (classified as “passive trading”).  Econintersect estimates from the data presented in the report that the ratio of profitablity for aggressive trades vs. passive trades may be as high as 4:1.

The following graph from the report indicates that the liquidity withdrawing HFT activity (HFTa) is significantly larger than the activity that increases liquidity (HFTp).  From the report:

Aggressive HFTs (if >60% of their trades are liquidity taking), Mixed (if between 20% and 60% of their trades are liquidity taking), and Passive (if <20% of their trades are liquidity taking).

HFT-by-type

This is a condemnation of the claim that HFT activities provide liquidity to markets and therefore benefit traditional investors who can make trades more easily.  The HFT firms are taking money from the market and, on net, decreasing liquidity.  This is akin to paying the local mob to protect your store while they are actually doing the shoplifting.

The three researchers are Matthew Baron, Princeton University; Jonathan Brogaard, Foster School of Business, University of Washington; and Andrei Kirilenko, CFTC economist.

Here is the abstract of the current draft (November 2012) of the report of the study:

Abstract: We examine the profitability of high frequency traders (HFTs). Using transaction level data with user identifications, we find that high frequency trading (HFT) is highly profitable: HFTs collectively earn over $23 million in trading profits in the E-mini S&P 500 futures contract during the month of August 2010. The profits of HFTs are mainly derived from Opportunistic traders, but also from Fundamental (institutional) traders, Small (retail) traders, and Non-HFT Market Makers. While HFTs bear some risk, they generate unusually high average Sharpe ratios with a median of 4.5 across firms in August 2010. Finally, HFTs profits are persistent, new entrants have a higher propensity to underperform and exit, and the fastest firms (in absolute and in relative terms) earn the highest profits.

While the study determined that HFT was profitable, it is not a wide-open field.  In October a two year old HFT firm Eladian Partners shut down because of lack of business.  The ever declining trading volume for U.S. stocks has apparently sufficiently reduced the number of traditional investors needed to support the skimming operations of HFT.  When the flock diminishes the shearing productivity goes down and the number of shearers who can make a living is reduced.   From the New York Times:

The brokerage firm Rosenblatt Securities estimated that the profits these firms were expected to earn this year from trading American stocks would be down 35 percent from last year and 74 percent from 2009, at the industry’s peak.

The experience of Eladian Partners reflects on the observation (emphasis below) by Baron, Brogaard and Kirilenko in the introduction to their report:

In this paper, we examine the link between HFT speed, liquidity provision, and trading profits. We have four main findings. First, HFTs are profitable, especially Aggressive (liquidity-taking) HFTs, and generate high Sharpe ratios. Second, HFTs generate their profits from all other market participants, and do so mainly in the short and medium run (seconds to minutes). Third, firm concentration in the HFT industry is not decreasing over time, nor is its profitability. We conjecture this is tied to our fourth finding that HFTs profits are persistent, new entrants have a higher propensity to underperform and exit, and the fastest firms (in absolute and in relative terms) make up the upper tail of performance.

John Lounsbury

Sources:


  • The Trading Profits of High-Frequency Traders (Matthew Baron, Jonathan Brogaard and Andrei Kirilenko, Draft paper, November 2012)

  • HFT Critics Call CFTC Economist’s Study “Groundbreaking” (Melanie Rodier, Wall Street & Technology, 05 December 2012)

  • High Speed Traders Grab Significant Profits Away From Traditional Investors, Study Finds (Melanie Rodier, Wall Street & Technology, 04 December 2012)

  • Eladian Closure an Ominous Sign for High-Frequency Trading (Ivy Schmerken, Advanced Trading, 17 October 2012)

  • High Speed Trading Executives Shut Firm (Nathaniel Popper, New York Times, 16 October 2012)
Previous Post

The End of Efficiency

Next Post

More Bank Fraud Allegations Surface Years After the Fact

Related Posts

OKX To Stop Operations In Canada By June 22, 2023
Business

OKX To Stop Operations In Canada By June 22, 2023

by John Wanguba
March 20, 2023
Hong Kong To Begin Regulating Crypto In June 2023, 80 Firms Ready To Join
Economics

Hong Kong To Begin Regulating Crypto In June 2023, 80 Firms Ready To Join

by John Wanguba
March 20, 2023
JPMorgan And Other Top U.S. Banks Swamped With New Clients Post SVB Collapse – FT
Business

JPMorgan And Other Top U.S. Banks Swamped With New Clients Post SVB Collapse – FT

by John Wanguba
March 20, 2023
Top Five U.S. Regional Lenders With Most Uninsured Deposits
Business

Top Five U.S. Regional Lenders With Most Uninsured Deposits

by John Wanguba
March 20, 2023
Bitcoin Reaches New Highs, Records Double-Digit Gain As Banking Crisis Fears Increase
Economics

Bitcoin Reaches New Highs, Records Double-Digit Gain As Banking Crisis Fears Increase

by John Wanguba
March 20, 2023
Next Post

More Bank Fraud Allegations Surface Years After the Fact

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins bank banking banks Binance Bitcoin Bitcoin market Bitcoin mining blockchain BTC business China crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi Elon Musk ETH Ethereum Europe finance FTX inflation investment market analysis Metaverse mining NFT nonfungible tokens oil market price analysis recession regulation Russia stock market technology Tesla the UK the US Twitter

Archives

  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • OKX To Stop Operations In Canada By June 22, 2023
  • Hong Kong To Begin Regulating Crypto In June 2023, 80 Firms Ready To Join
  • JPMorgan And Other Top U.S. Banks Swamped With New Clients Post SVB Collapse – FT

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish