Countering High-frequency Traders
April 13, 2012 - Big Ideas
How can low-frequency traders save their microscalps from high-frequency traders? In the March 2012 version of their paper entitled “The Volume Clock: Insights into the High Frequency Paradigm”, David Easley, Marcos Lopez de Prado and Maureen O’Hara explore high-frequency trading (HFT) as volume-metered or transaction-metered (rather than time-metered) exploitation of market order processing rules and trading behaviors of others (market microstructure). Low-frequency traders focus on return drivers associated with economic/monetary policy, asset allocation and valuation methods. High-frequency traders fixate on exchange order matching engines, network connections, machine learning, order placement delays and game theory. When market microstructures differ (as for seemingly similar cash and futures equity index markets), HFT strategies differ. Based on relevant research, they conclude that: Keep Reading