It's not Algos take liquidity nor market makers add liquidity essentially. VOLUME is the true liquidity. Market makers actually do NOT ADD volume but DOUBLE the volume by act as a mediate party. Say it was A sell 100 shares to B the volume is 100, now market makers come into play it become A sell 100 to the market maker, then B buy 100 from the market maker. The volume doubled, Thus the liquidity doubled. There are stock markets without any market makers with huge volume and liquidty in the world.
Imaging if Algos or HFTs remove liquidity and inceased spreads, this becomes an opportunity for other Algos and HFTs to benifit from the widen spreads by scalping the spreads. It usually need an ECN or DMA broker to do that, but as long as there is such an opportunity, capitals will come in. Someones worry HFT may take all the liquidity and spreads are widened. Say if EUR/USD spread is 10 pips all days, isn't this is a good opportunity to write your Algo to add limit order insde the spread and take almost free money.
The culprit is not Algos and HFTs, the culprit is the borkers don't allow traders take advantage of widen spreads by add limit order inside spread.
Imaging if Algos or HFTs remove liquidity and inceased spreads, this becomes an opportunity for other Algos and HFTs to benifit from the widen spreads by scalping the spreads. It usually need an ECN or DMA broker to do that, but as long as there is such an opportunity, capitals will come in. Someones worry HFT may take all the liquidity and spreads are widened. Say if EUR/USD spread is 10 pips all days, isn't this is a good opportunity to write your Algo to add limit order insde the spread and take almost free money.
The culprit is not Algos and HFTs, the culprit is the borkers don't allow traders take advantage of widen spreads by add limit order inside spread.
