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This work focuses on two of the more frequent practices in financial (especially capital) markets - the use of hidden orders and High-Frequency Trading (HFT). Although the use of each of them may reach 40% of the market turnover - even 60% for HFT, the actual knowledge on how they affect liquidity, prices, and market structure is still limited - especially if they are combined. The presence of both of these practices may look controversial, as it seems to be going in the opposite direction to what some of the goals that market regulators try to reach - transparency and increase of market liquidity. Additionally, their use suggests first, to give a clear advantage to some traders while not knowing the exact consequences to others. The aim of this paper is, by performing a literature study, to structure the current knowledge on a very specific topic in the area of market microstructure - the use of hidden orders and High-Frequency Trading. This paper tries to show the motivations, strategies, and eventual price effects behind hidden orders and High-Frequency Trading. It is also important to mention that this paper is based on scarce empirical research available (mainly for the US market) and as such, it is intended to encourage further analysis and research on this important topic. [ABSTRACT FROM AUTHOR]

The opening of a charge gap driven by interaction is a fingerprint of the transition to a Mott insulating phase. In strongly correlated low-dimensional quantum systems, it can be associated to the ordering of hidden non-local operators. For Fermionic 1D models, in the presence of spin–charge separation and short-ranged interaction, a bosonization analysis proves that such operators are the parity and/or string charge operators. In fact, a finite fractional non-local parity charge order is also capable of characterizing some two-dimensional Mott insulators, in both the Fermionic and the bosonic cases. When string charge order takes place in 1D, degenerate edge modes with fractional charge appear, peculiar of a topological insulator. In this article, we review the above framework, and we test it to investigate through density-matrix-renormalization-group (DMRG) numerical analysis the robustness of both hidden orders at half-filling in the 1D Fermionic Hubbard model extended with long range density-density interaction. The preliminary results obtained at finite size including several neighbors in the case of dipolar, screened and unscreened repulsive Coulomb interactions, confirm the phase diagram of the standard extended Hubbard model. Besides the trivial Mott phase, the bond ordered and charge density wave insulating phases are also not destroyed by longer ranged interaction, and still manifest hidden non-local orders. [ABSTRACT FROM AUTHOR]

The opening of a charge gap driven by interaction is a fingerprint of the transition to a Mott insulating phase. In strongly correlated low-dimensional quantum systems, it can be associated to the ordering of hidden non-local operators. For Fermionic 1D models, in the presence of spin⁻charge separation and short-ranged interaction, a bosonization analysis proves that such operators are the parity and/or string charge operators. In fact, a finite fractional non-local parity charge order is also capable of characterizing some two-dimensional Mott insulators, in both the Fermionic and the bosonic cases. When string charge order takes place in 1D, degenerate edge modes with fractional charge appear, peculiar of a topological insulator. In this article, we review the above framework, and we test it to investigate through density-matrix-renormalization-group (DMRG) numerical analysis the robustness of both hidden orders at half-filling in the 1D Fermionic Hubbard model extended with long range density-density interaction. The preliminary results obtained at finite size including several neighbors in the case of dipolar, screened and unscreened repulsive Coulomb interactions, confirm the phase diagram of the standard extended Hubbard model. Besides the trivial Mott phase, the bond ordered and charge density wave insulating phases are also not destroyed by longer ranged interaction, and still manifest hidden non-local orders.

We experimentally examine pre-trade transparency in fragmented limit order markets. Allowing traders to hide their orders encourages limit order usage. This improves measures of liquidity by increasing depth and narrowing spreads. However, because some of this depth is not displayed, market fragmentation may limit traders' ability to capitalize on the improved liquidity. This happens when traders execute against orders at worse prices than orders in another market, often referred to as "trade-throughs." In our laboratory setting, increased trade-throughs in a dark market impose costs of similar magnitude to the benefits of increases in depth leaving effective liquidity unchanged. • Traders increase available liquidity when they can place hidden orders. • When markets are fragmented, hidden orders are 'traded through,' preventing traders from always receiving the best price. • Increased trade-throughs impose costs offsetting the benefits of increases in depth, leaving effective liquidity unchanged. [ABSTRACT FROM AUTHOR]

This article deals with the informativeness of iceberg orders, also known as hidden limit orders (HLOs). Namely, we analyze how the market reacts when the presence of hidden volume in the limit order book is revealed by the trading process. We use high-frequency book and transaction data from the Spanish Stock Exchange, including a large sample of executed HLOs. We show that just when hidden volume is detected, traders on the opposite side of the market become more aggressive, exploiting the opportunity to consume more than expected at the best quotes. However, neither illiquidity nor volatility increases in the short term. Furthermore, the detection of hidden volume has no relevant price impact. Overall, our results suggest that market participants do not attribute any relevant information content to the hidden side of liquidity. [ABSTRACT FROM AUTHOR]

Electronic limit order books are prevalent in financial markets. Most allow ‘hidden orders,’ in which the order's information is neither revealed to the market nor reflected in the National Best Bid and Offer quotes. While they enable traders to conceal information, hidden orders lose time priority to displayed orders, and thus face increased risk of non-execution. We examine hidden order activity around earnings announcements, a time when demand for the opacity of hidden orders is likely high, due to heightened private information acquisition, but demand for immediate trade execution is also likely high due to increased trading activity. We find that hidden order trade volume, the number of hidden orders executed, hidden order trade size, and the full size of hidden orders executed all increase around earnings announcements. This suggests hidden orders provide significant liquidity at a time when quoted liquidity typically falls. We also show that changes in hidden order activity at earnings announcements are related to cross-sectional variation in the firm's pre-announcement information environment, the information conveyed by the earnings announcement, and changes in quoted liquidity. [ABSTRACT FROM AUTHOR]

In expandable limit order markets, quotes represent a firm-price commitment to trade but also serve as an invitation for one-on-one quantity negotiation. Analyzing interdealer Treasury data, we find evidence that expandable limit orders offer benefits by reducing costs associated with information leakage and stale limit orders. They also create queues for other traders who must wait to transact, however. We conclude that viable electronic communication network designs which incorporate expandable limit orders to encourage block-trading must also provide escape valves, such as the periodic enforcement of strict price-time priority, to limit the negative externality imposed on those waiting to trade. [Copyright &y& Elsevier]