Literature Review Example: High Frequency Trading

Paper Type:  Literature review
Pages:  2
Wordcount:  518 Words
Date:  2021-03-31

High Frequency Trading (HFT) is an important factor of the current market structure. It has received attention from many scholars and who agree on its significance in the equity market structure. HFT is characterized by proprietary capacity to generate large number of orders and trades on a daily basis, at least according to Brogaard, Hendershott and Riordan (2013). This definition in itself points out to an inherent challenge to examining HFT, since publicly available on orders and trades from equity markets do not provide identity of buyers and sellers, and thus makes it difficult to know whether an activity is originating from a HFT account. One of the most worth noting finding of researchers on this phenomenon is that HFT is an activity that involves diverse trading strategies. Hence, HFT does not primarily involve passive market-making strategies that provide liquidity through resting orders, rather may as well involve aggressive trading in liquidity-taking orders that trade against the passive ones(Carrion, 2013). This diversity characteristic calls for a move away from monolithic examination of HFT from passive order books as this may mean exclusion of a large volume of aggressive activities involving HFT. This is the problem notable with using metrics and proxies available in passive order books. Apparently, 69% of all marketing activities in small-capitalization stocks are established to involve aggressive HFT activities. It is unfortunate that these aggressive HFT activities reduce equity spread and may result in mini flash crashes as was the case in May 6, 2010. While Kirilenko, et al. (2011) in their examination of Flash Crash Dataset determined that HFT activity did not directly result in the 2010 flash crash, they concluded that the severe disruption of the equity market structure was directly attributable to the violent response to unusually high market pressure. This in turn exacerbated market volatility on May 6, 2010, eventually culminating into a flash crash. The same scenario could be used to explain the events on the eve of Brexit, when stock markets rallied ahead, and on the election day when the unexpected result in violent response by financial markets.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!


Avdjiev, S., Du, W., Koch, C., & Shin, S. H. (Nov. 2016). The dollar, bank leverage and the deviation from covered interest parity. BIS Working Papers, 592.

Auer, R., Levchenko, A., & Saure, P. (2016). International inflation spillovers through input linkages. BIS, mimeo.

Borio, C., Sushko, B., McCauley V., & McGuire, P. ( Oct. 2016). The failure of covered interest parity: FX hedging demand and costly balance sheets. BIS Working Papers, 590.

Ehlers, T. & Eren, E. (Dec. 2016). The changing shape of interest rate derivatives markets. BIS Quarterly Review. (October 21, 2016). European Council October 2016: Prime Minster's press statement. Retrieved 31 Dec. 2016, from

Lannoo, K. (December 7, 2016). A hard Brexit is the last thing Japan wants. CEPS Commentary. Brussels: Place du Congres.

Ting, C. (2016). Trading Liquidity: Models and Empirical Findings. Tokyo Metropolitan University Seminar 2016. Singapore: Singapore Management University(Lee Kong Chian School of Business).

Whitman, R. G. (July 15, 2016). Soft or hard Brexit: Commentary. European Policy Centre.

Wright, W. (April, 2016). The Potential Impact of Brexit on European Capital Markets: A Qualitative Survey of Market Participants. New Financial.

Cite this page

Literature Review Example: High Frequency Trading. (2021, Mar 31). Retrieved from

Free essays can be submitted by anyone,

so we do not vouch for their quality

Want a quality guarantee?
Order from one of our vetted writers instead

If you are the original author of this essay and no longer wish to have it published on the ProEssays website, please click below to request its removal:

didn't find image

Liked this essay sample but need an original one?

Hire a professional with VAST experience!

24/7 online support

NO plagiarism