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I think you can separate them perfectly well. Algorithmic traders compete on price: they aim to offer better prices, and narrower spreads, to liquidity consume
by conistonwater 12y ago
I think you can separate them perfectly well.
Algorithmic traders compete on price: they aim to offer better prices, and narrower spreads, to liquidity consumers.
High-frequency traders compete on the speed, with which orders are placed. The parasitic traders are the ones who profit not by providing you with a service, but by taking advantage of your inability to place and remove orders as quickly as they can.
You can do both of these at the same time, but the two competitive advantages are different and separate.
Market making is what all this activity is supposed to do, because it is a service provided by the liquidity providers, through the exchanges, to the liquidity consumers.
I think the distinctions are clear enough.
- yummyfajitas 12y agoMarket makers compete with each other on speed. If market maker A and B both want to provide you liquidity at $10.00/10.05, whichever one is fastest will be the one to get your business. If market maker A wants to compete on price and provide liquidity at $10.003/10.049, too bad. That's illegal. He must compete on speed instead. I wrote some tutorials on mechanics of this a while back, you might find them useful: http://www.chrisstucchio.com/blog/2012/hft_apology.html http://www.chrisstucchio.com/blog/2012/hft_apology.html http://www.chrisstucchio.com/blog/2012/hft_apology2.html http://www.chrisstucchio.com/blog/2012/hft_apology2.html http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html
- deleted 12y ago[deleted]
- dllthomas 12y ago"If market maker A and B both want to provide you liquidity at $10.00/10.05, whichever one is fastest will be the one to get your business." Unless the allocation is pro-rata, but it usually isn't.
- harryh 12y agoBy being very fast at taking into account new information as fast as possible market makers reduce their risk, thus allowing them to offer better prices. Price and speed are closely intertwined.