Germany’s Bundesbank: High-frequency trading can enhance volatility - BBG

The German central bank, Bundesbank (Buba), published a latest study on High Frequency Trading (HFT), pulling out data from Bund and DAX futures markets.

Key Points from the study:

“High-frequency trading has the potential to both increase market liquidity and remove it at times of higher volatility.”

“In a calm market environment, HFT market participants contribute a significant amount of liquidity.”

“However, during highly volatile market phases, the research shows that HFT market makers in both Bund and DAX futures markets temporarily reduce liquidity. HFT actors are especially active in times of strong market fluctuations and can therefore contribute to trend-enhancing price developments.”

“For one, the results demonstrate how important in implementation of incentive mechanisms is so that passive HFT market makers keep up liquidity provisions in periods of higher stress.”

“Future research from central banks, regulatory authorities and academic institutions could profit from easier access to similarly granular data.”