High-Frequency Trading and Its Influence on Market Liquidity and Volatility

Author(s)	Mr. Leandro Jorge Yacoubian
Country	Argentina
Abstract	High-frequency trading (HFT) has transformed modern financial markets, characterized by the execution of a large number of orders at extremely high speeds. This research investigates the influence of HFT on market liquidity and volatility across various equity markets. Through a review of empirical studies and analysis of trading data, the paper explores how HFT contributes to both liquidity provision and market instability under different conditions. While HFT generally enhances market liquidity by narrowing bid-ask spreads, it also introduces risks, particularly during periods of stress, such as flash crashes. This dual impact of HFT calls for nuanced regulatory approaches that preserve its liquidity benefits while mitigating associated volatility. The paper contributes to the ongoing debate on HFT by highlighting its complex role in market microstructure dynamics.
Keywords	High-Frequency Trading, Market Liquidity, Market Volatility, Flash Crashes, Trading Algorithms
Field	Mathematics > Economy / Commerce
Published In	Volume 7, Issue 3, May-June 2025
Published On	2025-05-17
DOI	https://doi.org/10.36948/ijfmr.2025.v07i03.45198
Short DOI	https://doi.org/g9kf7j

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