Aggressive HFT has long been associated with volatility. Several academic studies hypothesized that higher aggressive HFT participation leads to higher volatility levels, and for good reasons, as explained below. The empirical evidence, however, has been hard to come by, until now. This note explains the empirical relationships between implied volatility of options on stocks comprising the S&P 500 and participation of aggressive HFT, as measured by the AbleMarkets Aggressive HFT Index. As the note shows, two prominent conclusions can be made about the aggressive HFTs in relation to volatility in which the aggressive HFTs are present: 1. Higher aggressive HFT leads to higher implied volatilityRead More →

Picture this: you can protect your investments against the aggressive high-frequency trading (HFT) right in your portfolio. “What?” you may ask. With the latest technology from AbleMarkets, now available on Quandl, hedging aggressive HFT is no longer just wishful thinking, but a reality. How is hedging aggressive HFT possible? First, to hedge aggressive HFT exposure, one needs to know what that exposure is. AbleMarkets aggressive HFT Index summarizes the daily participation of aggressive HFT as a percentage of the total daily volume traded in 90% of the active U.S. stocks (those comprising the Russell 3000 index). Using proprietary technology, now nearly 10 years in theRead More →

Over the last few years, a number of exchanges and dark pools emerged claiming that their businesses will exclude high-frequency traders (HFTs) detrimental to institutional investors. Almost invariably, the HFTs in question happened to be the so-called Aggressive HFTs: HFTs that execute mostly using market orders and have been shown to erode liquidity, causing short-term volatility in the process. While the idea of excluding aggressive HFTs may be appealing to investors, the realities of modern microstructure preclude this from happening, as this article discusses. As a result, most of today’s exchanges in the United States have a similar proportion of aggressive HFTs by volume ofRead More →

U.S. regulators have recently questioned the role that high-frequency trading (HFT) plays in the bond market. The latest research from AbleMarkets studies a subclass of HFTs known as aggressive HFT. The research shows that: 1) Aggressive HFTs initiate, on average, 20% of trades in the U.S. Treasuries market. 2) Aggressive HFTs often trade U.S. Treasuries when no one else does: aggressive HFTs accounted for nearly all of the trades on the post-Thanksgiving Monday in 2014 and the post-Memorial Day Tuesday in 2015. 3) Participation of aggressive HFTs in the U.S. Treasury market has declined slightly in 2015 from 30% in much of December 2014 andRead More →

New research from AbleMarkets shows that stocks with higher participation of aggressive High-Frequency Traders (HFT) experience higher intraday volatility. The new study compares intraday volatility, as measured by the difference between the daily high and low and normalized by the daily closing price, with aggressive HFT participation captured by AbleMarkets aggressive HFT index. Every 1% increase in AbleMarkets aggressive HFT index on a given trading day on average corresponds to 2% increase in volatility on the same day across all of the S&P 500 stocks. Aggressive HFTs comprise a set of trading strategies that use predominantly market orders (as opposed to limit orders) to executeRead More →

The new revelations surrounding the Flash Crash of May 6, 2010, once again brought to light an undeniable fact: U.S. regulators desperately need to boost their real-time surveillance capabilities. Nearly five years has elapsed between the time the London-based Navinder Singh Sarao, allegedly influenced the Flash Crash and the government identification of this event! Gone are the days when market issues could be analyzed by a team watching for on-screen images of market events. Regulatory agencies are ill-equipped to handle real-time issues in a timely manner. However, market solutions, such as suite of real-time products are designed to spot market microstructure issues, such asRead More →

Markets are bursting at their seams with financial data. Much of the data that researchers are now mining is called Level I, II, and III data; this data comprises information on orders, executions and cancellations across different price levels. Until recently, such data was scarce. Today, it is more accessible, but still little understood. The not-for-profit Big Data Finance 2015 conference taking place at NYU Courant on March 6, 2015, will present selected techniques and results of big data analytics applied to Finance. This article briefly explores a data phenomenon. The relationship between returns and order placement and cancellations is examined and the following findingsRead More →

When you trade, do you place market orders, limit orders or a combination of both? Do you or should you care? The answer is yes, you should care, particularly in today’s volatile markets, and this article explains why. When investors place a market order, say, an order to buy 100 shares of IBM at market, the investors are trying to tell the exchanges: “buy 100 shares of IBM for my account at the best available price.” However, by the time the order is transmitted to their broker and then by their broker to the exchange, the best available price may have drifted away. The largerRead More →

Traditional variables taken into consideration by investors have included growth prospects, competition, recent earnings, dividends, long-term volatility and the like. Fairly recently, investor relations began taking into account and explaining shorter-term market moves, such as the stock’s responses to market-wide events. Lately, however, this information is no longer sufficient. Today’s institutional investors increasingly care about the comparative intraday price dynamics of stocks, including participation of aggressive high-frequency traders and the stock’s propensity for flash crashes. Aggressive high-frequency traders are the ultra-fast mostly automated trading systems that are capable of swooping in and out of a stock at lightning speed. Aggressive high-frequency traders have been shownRead More →

Recent market moves left many buy-side investors puzzled and wanting for more information. Was the extreme volatility observed in the Fall of 2014 a gust of wind or a hurricane, a harbinger of further price swings to come? Our research,, provides answers. Take an absolutely ordinary day, Monday, October 13, 2014. It was Columbus Day, a banking holiday, when stock markets are open, nevertheless. Typically, Columbus Day is a quiet trading day, with little news to move the securities prices. This day was no different: the only event listed on Bloomberg LP was a speech by Chicago Federal Reserve Bank President Charles Evans. Dr.Read More →