Low Latency Technology
(Dr. Andrei Kirilenko)
: global capita market issue.
: Informational propertiesMarket-microstructure of securitiesand derivatives
The Trading Profits of High Frequency Traders
We examine the profitability of a specific class ofintermediaries, high frequency traders (HFTs).Usingtransaction level data with useridentifications, we find that high frequencytrading (HFT) is highly profitable: 31 HFTs earnover $29 million in trading profits in one E-miniS&P 500 futures contract during one month. Theprofits of HFTs are mainly derived fromOpportunistic traders, but also from Fundamental(institutional) traders, Small (retail) traders andNon-HFT Market Makers. While HFTs bear somerisk, they generate an unusually high averageSharpe ratio of 9.2.These results provide insight into the efficiency ofmarkets at high-frequency time scales and raise
the question of why we don’t see more
competition among HFTs.