High Frequency Market Microstructure
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What they found
O'Hara surveys how the shift to high-frequency, fragmented, algorithmic markets changed what microstructure means. She argues that classic concepts (trades as information, time as clock time, order flow as buy versus sell) no longer map cleanly onto a world where most orders are cancelled, trades are sliced into child orders, and speed determines who trades with whom. She reviews the evidence on HFT and liquidity, discusses order types like hide-not-slide and intermarket sweeps, and explains why measures based on volume time and order-book dynamics are replacing older tools.
What you can use
- Most of what you see on the tape is machine-to-machine; reading individual prints as 'smart money' is usually misreading.
- Order type and venue choice are part of any serious trader's edge or cost; a plain market order is the most expensive way to trade.
- Volume-based clocks, not wall-clock time, are the natural way to think about intraday risk.
Caveats
A survey and opinion piece rather than new evidence, written from a 2014 vantage point. Some of the order types discussed have since been restricted or eliminated.
Tags: microstructure, hft, survey, order-types
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.