How do Institutions avoid circular trading


How do HFTs and/or other institutions avoid circular trading when trading at a high frequency or when buying and selling multiple times in a day?


Market is made of Liquidity providers and Liquidity takers. When an uninformed trader is selling in panic, he is seeking liquidity and pays for it. When HFT provides the liquidity to such trader, HFTs make a profit.

HFT system is a liquidity provider. It creates a market, that is made of Bid and Ask. So it is bidding and asking at the same time. The ask can be taken only by another buyers and the HFT’s bid can be hit by another seller. These two buyer and seller is someone is searching for liquidity.

There can be a spiral trading in a day for a HFT. In market that is flowing like a river, such things tend to happen, and that is why most of the trading doesn’t meet is core objective. The objective is to move money to where it is most required… Till something more efficient is invented, we have the market!!! High frequency or not…

Happy Trading

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