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Economists Study Ideal Trading Frequency

The answer to the question “How fast should a security trade?” is apparently “0.2 to 0.9 seconds” according to a new paper from an SEC economist and an economist from the University of Oxford. The researchers modeled their analysis on a batch execution market and premised their analysis on the idea that the ideal trading interval is based on a security’s volatility, the intensity of trading in a security, and a security’s correlation with the broader market. Due to the inherent limitations of such a study, the researchers acknowledge that their estimates could be as much as an order of magnitude off; however, even taking into account the potential for error and thus the potential for the ideal trading frequency to be as low as 0.02 seconds, the study still suggests that “it is unclear if the current milli- and microsecond environment is really necessary.”