Are “Lit” Trading Venues Too Toxic for Average Investors? Is HFT Flash Crash Culprit?
What effect does “adverse selection” (the risk that a limit order gets picked off by a more informed trader) have on different market participants? Are “lit” trading venues too toxic for average investors? Was high-frequency trading (HFT) to blame for recent flash crashes?
Those were just some of the timely issues covered during my recent #CFAHFT Twitter chat with Dennis Dick, CFA, proprietary trader and head of equity market structure at Bright Trading. We set out to examine the nature of a modern equity market that is dominated by HFTs, and ultimately whether it’s good for investors.
Representatives from both the buy and sell side and pro- and anti-HFT camps participated in the chat, which covered a new CFA Institute study that examines the characteristics of liquidity in equity markets and the issue of “adverse selection.“
For more from the recent Twitter chat, see social media highlights below.
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Image credit: iStockphoto.com/Nikada