How high-frequency trading changed the situation on world markets: 4 conclusions of analysts at Credit Suisse
In the spring of 2017, analysts at Bank Credit Suisse published a report on the “real role of HFT trading in the modern financial market ecosystem”. The document describes how high-frequency trading has changed the situation on world markets - we have chosen five main findings of the study.
Trading volumes increased
The development of high-frequency trading technologies has had the “greatest, most noticeable and long-lasting” impact on trading volumes. According to Credit Suisse, the trading volume, which falls on the operations of trust managers and investors, both active and passive, in the US stock market has remained almost unchanged over the past ten years (3-4 billion shares a day).
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At the same time, the total volume of trading on the US stock exchanges in the period after the 2008 crisis has more than doubled - HFT trading was especially actively developing during these years.
This fact also has negative consequences - for example, the topic of the “fake” activity of trading robots is widely discussed, which can put up a lot of applications and then immediately cancel them, hoping to influence the price. However, by and large, analysts at Credit Suisse believe that “the majority of HFT activity helps to connect people in the financial market, reducing the time spent on counterparty expectations.”
The difference in prices for the purchase and sale of shares has changed
The difference in prices in bids for purchase (bid) and sale (ask) is called bid-ask spread - this is an important concept for stock trading. In theory, the smaller the “gap” between them, the better for the market. The development of HFT has had an impact here too - the size of the spreads of shares of large companies has decreased, while smaller ones have, on the contrary, increased. This suggests that more often high-frequency traders are interested in more liquid shares of well-known companies.
According to the Credit Suisse report, stock spreads change in line with volatility, and the spread of spreads between the most and least liquid stocks has increased significantly since 2009. That is, now the spreads of shares of large and small companies no longer move in the same direction.
Shares of large and small companies are volatile at different times of the day.
The volatility of stocks of large and small companies in recent years has been observed in various periods of the trading day. For example, at the beginning of trading, the price of shares of not the largest companies changes more actively - this is due to the fact that it takes more time to determine the fair price of such shares at the moment. However, by the end of the trading session, on the contrary, such shares behave calmer than the securities of large organizations.
On the contrary, for shares of large companies that are actively traded on the market, sometimes there are “flickering” price fluctuations, when they quickly change many times inside the bid-ask spread at the end of the trading day. Both of these phenomena are also attributed by analysts to the HFT.
The number of noticeable price spikes in large companies has decreased
As a rule, HFT trading strategies are aimed at extracting profits from market inefficiencies, and not at participating in large price movements. This results, among other things, in the reduction of large price fluctuations of well-known companies, with which high-frequency traders often perform operations.
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Source: https://habr.com/ru/post/343286/
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