Abstract
Using NASDAQ high frequency trading and limit order book data over 120 stocks between 2008 and 2010, we document that HFTs are active in order placement along the book with an average placement at the 5th step, slightly ahead of NHFTs. HFT orders are further ahead during market crisis, though price-wise they retreat. Liquidity provider in trades, not consumer, matters in order placement along the book. Traders becomes more (less) aggressive placing orders when their own (the other) kind provides liquidity in trading. Trades between HFTs (NHFTs) are significantly related with less aggressive orders from NHFTs (HFTs) along the book.
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