HFT and Liquidity: A Blessing or a Hidden Threat to Markets? 💧❓
The role of HFT in providing market liquidity is a subject of ongoing debate as of July 2025:
Pros for Liquidity: HFT market makers constantly place orders, which tightens spreads and facilitates trading for other participants. This reduces transaction costs for investors.
Cons for Liquidity (Flash Crashes): The rapid cancellation of orders by HFT algorithms during periods of high volatility or stress can lead to a sharp disappearance of liquidity, potentially contributing to "flash crashes." Regulators and researchers continue to study this complex interaction, striving to maximize the benefits of HFT for the market while minimizing risks.
