I don't see why high-frequency trading contracts that spread.
If they overlap very briefly (say, across different markets) and nobody else has noticed yet, a trading program jumps in and arbs the difference. That increases the spread.
If they overlap very briefly (say, across different markets) and nobody else has noticed yet, a trading program jumps in and arbs the difference.
Utter nonsense. In the case of crossed markets it is illegal to trade. Trading under these circumstances would violate RegNMS and most matching engines will reject orders that would cross the markets.
HFT firms reduce the spread due to competition. If the spread is $0.03 (say $9.97 and $10.00), I can do one of two things to be at the top of the order book and be the first to trade. I can either place my order first, or I can place an order at a higher price. If I'm the fastest, I have the earliest order at price $9.97 and I get filled first in the event of a trade. In this case, I make $0.03/share. If I'm not the fastest, I can still get to the top of the book by placing an order at $9.98. This reduces the spread to $0.02, and I can only make $0.02/share.
