Financial Markets Suitable for High-frequency Trading

This chapter examines the topic of market suitability for high-frequency trading. To be appropriate for
this type of trading, two requirements must be met by two factors: market liquidity and availability of
electronic execution.
According to Bervas (2006) (FSR financial stability review International Environment and Markets
Financial Sector), a perfectly liquid market is the one where the quoted bid or ask price can be
achieved irrespective of the quantities traded. Market liquidity depends on the presence of trading
counterparties in the market, as well as the counterparties’ willingness to trade. The market
participants’ willingness to trade in turn depends on their risk aversions and expectations of impending
price movements, along with other market.