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HFT Liquidity – Not at the Open

Market pundits say that HFT has increased liquidity and tightened spreads. This may be true during the middle of the trading day, but does not appear to be true during times of increased risk. We analyze spreads and HFT liquidity in the first few minutes of trade:

For further information about HFT liquidity at the open: Spreads Narrower and Deeper than ever before? Guess again.

This entry was posted by Dennis Dick on July 26, 2012 at 12:06 pm, and is filed under Articles, High Frequency Trading, Trading Education. Follow any responses to this post through RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

One comment

Nate Rock (4 days)

You guys point out one of the major problems with relying on HFT algos to provide “liquidity”. We at Nanex have been profiling liquidity during major news events and we see similar patterns. If you read “Broken Markets” written by Joe Saluzzi and Sal Arnuk, they make a similar argument.

If you check some of our latest research in mapping depth of book as a heat map over time (DepthMap) you can see the liquidity dry up (blue) before major news announcements.

http://www.nanex.net/Research/EMini3/Emini3.html
http://www.nanex.net/Research/EMiniCPI/EminiCPI.html

HFT algos like nice predictable, sub penny scraping fluctuations so they can jump the book and salami slice. As soon as they sense massive volatility (as soon as their predictions are outside of the 99.998% error tolerance) they retract out of the markets like the plankton feeding Christmas Tree Worms that they are.

http://www.youtube.com/watch?v=eS8OYF7isCU&feature=related

-rOck

Nate Rock, Nanex LLC.

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HFT Liquidity – Not at the Open

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