Transaction cost for HFTs
Let's say an HFT company acts as a market maker. I read that its b/o spread must be very tiny, in the fractions of a cent. What kind of commissions/transaction costs does it incur, if any, and how does it make profit beside them?
I don't work at a HFT but I'd assume they get similar benefits that we do by being a registered broker-dealer in the exchange. We pay a fraction of transaction costs that other participants do and often get paid rebates from the exchange.
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Market makers are incentivised to provide spreads on the market by the exchange, either in the US as a liquidity rebate or by direct payments as long as certain thresholds are reached (i.e. you are a comprehensive market maker),
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Market makers are incentivised to provide spreads on the market by the exchange, either in the US as a liquidity rebate or by direct payments as long as certain thresholds are reached (i.e. you are a comprehensive market maker),
And also from the obvious way a market maker makes money, thanks to the b/a spread. Their spread is tighter, but that's the point of high frequency. You make less money in each transaction but you do more transactions.
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