RT Journal Article SR Electronic T1 Understanding the Stakes of High-Frequency Trading JF The Journal of Trading FD Institutional Investor Journals SP 49 OP 73 DO 10.3905/jot.2014.9.4.049 VO 9 IS 4 A1 Frédéric Abergel A1 Charles-Albert Lehalle A1 Mathieu Rosenbaum YR 2014 UL https://pm-research.com/content/9/4/49.abstract AB Recent regulatory changes, known as Reg NMS in the United States or MiFID in Europe, together with the effects of the financial crisis (mainly its impact on liquidity), induced major changes on market microstructure in two main aspects:• the fragmentation of the liquidity around several trading venues, with the appearance of newcomers in Europe like Chi-X, BATS Europe, and Turquoise, some of them being not regulated or “dark”;• the rise of a new type of agent, high-frequency traders, responsible for 40% to 70% of the transactions.These two effects are linked, since high-frequency traders, being the main clients of the trading venues, have an implicit impact on the products offered by these venues.Combining a survey of recent academic findings and empirical evidence, this article presents what we consider to be the key elements to understanding the stakes of these changes, and also provides potential clues to mitigating some of them. The first section exposes the recent modifications in market microstructure. The second explains the role of the price formation process and how, interacting with liquidity supply and demand, high-frequency traders can reshape it. The next section discloses the various strategies used by these new market participants and their profitability. The final section discusses recent tools designed to assess and control high-frequency trading activity.TOPICS: Exchanges/markets/clearinghouses, developed