Abstract
The explosive growth of high-frequency trading (HFT) activity presents a host of challenges for traders looking for quality block executions in dark pools. HFT firms are making over $21 billion in annual profits, according to the TABB Group, and much of that is derived by capturing short-term alpha at the expense of traditional buy-side traders. Adverse selection is no longer as straightforward as it once was or as easy to avoid. This article looks at several methods for measuring both short-term and long-term adverse selection, as well as how to effectively filter for quality liquidity.
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