Wednesday, October 26, 2016

Bundesbank Confirms 
That High-Frequency Trading
Reduces Liquidity & Contributes 
To Flash Crashes
The Bundesbank today released a report in which it warned that high-frequency trading firms "tend to aggravate financial-market swings and contribute to 'flash crash events': "In a calm market environment, HFT market participants contribute a significant amount of liquidity .. However, during highly volatile market phases, the research shows that HFT market makers in both Bund and DAX futures markets temporarily reduce liquidity. HFT actors are especially active in times of strong market fluctuations and can therefore contribute to trend-enhancing price developments ,, Taken together, the different behaviors of active and passive high-frequency trading firms indicate a heightened risk of periods of short-term excessive volatility, which could encourage market upheavals as far as flash events .. Around the time of the publication of important news, the liquidity provided by HFT firms falls significantly."
LINK HERE to the article

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