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Order Exposure in High-Frequency Markets

Published online by Cambridge University Press:  12 September 2025

Bidisha Chakrabarty ,
Terrence Hendershott Open the ORCID record for Terrence Hendershott [Opens in a new window] ,
Samarpan Nawn  and
Roberto Pascual
Bidisha Chakrabarty*
Affiliation:
Department of Finance, Chaifetz School of Business, https://ror.org/01p7jjy08 Saint Louis University
Terrence Hendershott
Affiliation:
University of California at Berkeley Haas School of Business hender@haas.berkeley.edu
Samarpan Nawn
Affiliation:
Department of Finance and Accounting, https://ror.org/001xs0312 Indian Institute of Management Udaipur samarpan.nawn@iimu.ac.in
Roberto Pascual
Affiliation:
Department of Business Economics, https://ror.org/03e10x626 University of the Balearic Islands rpascual@uib.es
*
bidisha.chakrabarty@slu.edu (corresponding author)
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Abstract

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We examine hidden orders usage by algorithmic traders (ATs) and nonATs. ATs extensively use hidden orders but of smaller size than nonATs, who are the primary contributors to hidden volume. ATs’ relative share of hidden volume decreases with volatility, adverse selection costs, and the relative tick-size. Proprietary ATs (HFTs), who differ from agency ATs (AATs) in their information sets and potential gains from trade, hide orders to reduce competition for liquidity provision, whereas AATs use hidden orders to conceal information in their more informed orders and manage picking-off risk. Finally, superior technology provides limited benefit for hidden order execution.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 38
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, David Abad, Haorui Bai, Ashok Banerjee, Michael Brolley, Sabrina Buti, Carole Comerton-Forde, Laurence Daures, Darrell Duffie, Thierry Foucault (the editor), Bart Frijns, Corey Garriott, Arie Gozluklu, Sudip Gupta, Bjorn Hagstromer, Frank Hatheway, Marta Khomyn, Sophie Moinas, Vitto Mollica, Lars Nordén, Venky Panchapagesan, Satchit Sagade, Ajay Shah, Andriy Shkilko, Kumar Venkataraman, Irena Vodenska, Gunther Wuyts, Pradeep Yadav, Mao Ye, and seminar participants at the Auckland Finance Meeting (Queenstown), Auckland University of Technology, Australasian Finance and Banking Conference (Sydney), Emerging Markets Finance Conference (IGIDR Mumbai), European Financial Management Association Meeting (Ponta Delgada), Finance Forum (Madrid), Financial Management Association European Meeting (Kristiansand), Financial Market Liquidity Conference (Budapest), Northern Finance Association Meeting (Charlevoix), NSE-NYU Conference, Plato Partnership Conference, EEA-ESEM Annual Meeting (Rotterdam), Saint Louis University, Stockholm Business School, Swiss Society for Financial Markets Research (Zurich), Universidad CEU Cardenal Herrera, University of Paris-Dauphine, and Wilfrid Laurier University for useful comments. This study is part of the NSE-NYU Stern School of Business Initiative for the Study of the Indian Capital Markets.

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