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Trends in Practical Applications of Agents, Multi-Agent Systems and Sustainability pp 11–18Cite as

In Whose Best Interest? An Agent-Based Model of High Frequency Trading

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Part of the book series: Advances in Intelligent Systems and Computing ((AISC,volume 372))

Abstract

We study a stylized model of High Frequency Trading in which traders equipped with private values and costs operate in a Continuous Double Auction. They can revise their orders with different frequencies and, hence, (only) some agents can repeatedly revise and resubmit orders in the same session, mimicking the behavior of high frequency traders. All agents attempt to maximize profits, learning which bid and ask is to be posted in a given configuration of the book. We analyze the efficiency of the resulting market and the way the surplus from trading is apportioned among agents as a function of the number and type of high frequency traders. We find that the presence of a small proportion of high frequency traders increases the overall efficiency of the market; secondly, the ones who have the chance to frequently revise the offers learn to extract a disproportionate fraction of the profits that ordinarily would belong to slow traders.

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Author information

Authors and Affiliations

  1. Dept. of Economics, Ca’ Foscari University, Venice, Italy

    Paolo Pellizzari

Authors
  1. Paolo Pellizzari
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Corresponding author

Correspondence to Paolo Pellizzari .

Editor information

Editors and Affiliations

  1. Departamento de Inteligencia Artificial, Universidad Politécnica de Madrid, Madrid, Spain

    Javier Bajo

  2. Departamento de Inteligencia Artificial, Universidad Politécnica de Madrid, Madrid, Spain

    Josefa Z. Hernández

  3. Lille University of Science and Technology, Villeneuve d’Ascq Cédex, France

    Philippe Mathieu

  4. Department of Computer Science, Dartmouth College, Hanover, USA

    Andrew Campbell

  5. Computing Systems Department, Universidad de Castilla-La Mancha ESII, Albacete, Spain

    Antonio Fernández-Caballero

  6. Departamento de Informática y Automática, Universidad de Salamanca, Salamanca, Spain

    María N. Moreno

  7. Departamento de Sistemas Informáticos y Computación, Universidad Politécnica de Valencia, Valencia, Spain

    Vicente Julián

  8. Computer Science Department, Laboratory for Research and Development in Artificial Intelligence (LIDIA), University of A Coruña, A Coruña, Spain

    Amparo Alonso-Betanzos

  9. Facultat de Lletres de la Universitat Rovira i Virgili, Tarragona, Spain

    María Dolores Jiménez-López

  10. Departamento de Sistemas Informáticos y Computación, Universidad Politécnica de Valencia, Valencia, Spain

    Vicente Botti

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© 2015 Springer International Publishing Switzerland

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Pellizzari, P. (2015). In Whose Best Interest? An Agent-Based Model of High Frequency Trading. In: Bajo, J., et al. Trends in Practical Applications of Agents, Multi-Agent Systems and Sustainability. Advances in Intelligent Systems and Computing, vol 372. Springer, Cham. https://doi.org/10.1007/978-3-319-19629-9_2

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  • DOI: https://doi.org/10.1007/978-3-319-19629-9_2

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-19628-2

  • Online ISBN: 978-3-319-19629-9

  • eBook Packages: EngineeringEngineering (R0)

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