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Anticipatory Traders and Trading Speed

Published online by Cambridge University Press:  28 August 2018

Raymond P. H. Fishe ,
Richard Haynes  and
Esen Onur
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Abstract

We examine whether speed is an important characteristic of traders who anticipate local price trends. These anticipatory participants correctly trade prior to the overall market and systematically act before other participants. They use manual and algorithmic order entry methods, but most are not fast enough to be high frequency traders (HFTs). Those anticipating price trends have impacts as if they are informed traders, while the case for anticipatory participants affecting the volume of other traders is rejected. A follow-up sample shows significant attrition in accounts and difficulty maintaining the anticipatory strategies. To identify anticipatory traders, we devise novel methods to isolate local price trends using order book data from the West Texas Intermediate (WTI) crude oil futures market.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 2 , April 2019 , pp. 729 - 758
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank an anonymous referee, Jonathan Brogaard, Jennifer Conrad (the editor), Joel Hasbrouck, Scott Irwin, Steve Kane, Albert Menkveld, Scott Mixon, David Reiffen, Michel Robe, John Roberts, Sayee Srinivasan, and participants at the 2016 AFA meetings (High Frequency Trading session) for comments on earlier versions of this research. The coauthors of this paper prepared this research under the direction of the Office of the Chief Economist at the CFTC, where economists produce original research on a broad range of topics relevant to the CFTC’s mandate to regulate commodity futures markets, commodity options markets, and the expanded mandate to regulate the swaps markets pursuant to the Dodd–Frank Wall Street Reform and Consumer Protection Act. These papers are often presented at conferences and many of these papers are later published by peer-review and other scholarly outlets. The analyses and conclusions expressed in this paper are those of the authors and do not reflect the views of other members of the Office of the Chief Economist, other CFTC staff, or the CFTC itself. All errors and omissions, if any, are the authors’ own responsibility.

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