Fleeting Orders Under the Microscope

Limit orders are patient liquidity suppliers. However, the improvement of technology has changed the way people trade. High frequency trading is one of the phenomenon resulted from algorithmic trading. Recent researches indicate that a significant proportion of fast speed limit order cancellation exists in the markets. By using index futures data in Taiwan, our results indicate that different types of investors act dissimilarly regarding limit order cancellation. Chasing winner effects are obvious for individual and foreign investors (buy side). The possible explanation is positive feedback. On the contrary, institutional investors act the opposite way. Domestic institutions, proprietary, and foreigners (sell side) place a less aggressive same side order after a cancellation. This confirms that free option cost is important for institutional investors.