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Posted On: 05/17/2024 2:14:21 PM
Post# of 13778
LET THEM BRAY..................
Anecdotally, O’ Hara, Yao, and Ye report that 60% of 1-share trades are initiated
by high-frequency traders. This result is in line with recent literature suggesting that
high frequency traders routinely use small trades to hide their information
(Hendershott et al., 2011, Hendershott and Riordan, 2013, O'Hara et al., 2014). Additionally,
Clark-Joseph (2014) suggests that high frequency traders may place small
exploratory trades to detect information. 1-share trades may, thus, be a result of a trader
“pinging” a market center, perhaps as part of a liquidity detection strategy. A trader might
submit either an aggressive 1-share limit order inside the best displayed bid and ask quote, or
a 1-share market order, in order to detect hidden liquidity. A 1-share order that
executes would alert a trader that newly discovered liquidity is available at a specific price.
Regardless of technique, 1-share trades are likely not used to fill a large position, but
rather to learn about market conditions.
Anecdotally, O’ Hara, Yao, and Ye report that 60% of 1-share trades are initiated
by high-frequency traders. This result is in line with recent literature suggesting that
high frequency traders routinely use small trades to hide their information
(Hendershott et al., 2011, Hendershott and Riordan, 2013, O'Hara et al., 2014). Additionally,
Clark-Joseph (2014) suggests that high frequency traders may place small
exploratory trades to detect information. 1-share trades may, thus, be a result of a trader
“pinging” a market center, perhaps as part of a liquidity detection strategy. A trader might
submit either an aggressive 1-share limit order inside the best displayed bid and ask quote, or
a 1-share market order, in order to detect hidden liquidity. A 1-share order that
executes would alert a trader that newly discovered liquidity is available at a specific price.
Regardless of technique, 1-share trades are likely not used to fill a large position, but
rather to learn about market conditions.
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