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6min chapter
Liquidity Cascades
Flirting with Models
High Frequency Trading Liquidity During Market Stress
Supporters argue that high frequency traders help reduce bitask spreads and improve liquidities, thereby facilitating greater market efficiency through price discovery. detractors argue that highfrequency traders are unreliable and only provides at will or ghost liquidity, contributing to further price volatility. In defence of so called fickle high frequency trading liquidity, we should consider that these firms trade on substantial margin. Margin requirements can lead to a procyclical decline in available committed capital during tumultuous market environments.
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