By Irene Aldridge Recent arguments accuse high-frequency traders (HFTs) of a specific market distortion scheme. The HFTs, the argument goes, use their soon-to-be-cancelled limit orders to mislead large investors about the shape of the supply and demand curve. This HFT strategy is purported to work as follows: 1) an HFT posts lots of limit orders on both the bid and the ask sides of the trades; 2) once the large trader’s market order hits the bid (or lifts the offer), the HFT now knows that the large trader is now selling (or buying); 3) the HFT cancels all other limit orders and starts aggressively tradingRead More →