The speed of trading has considerably increased in recent years, due to progress in information technologies and automation of the trading process. This evolution raises many questions about the effects of trading speed. In this chapter we discuss the findings of the growing theoretical and empirical literature on trading speed in financial markets. We argue that an increase in trading speed raises adverse selection costs but increases competition among liquidity providers and the rate at which gains from trade are realized. Thus, the effect of an increase in trading speed on market quality and welfare is inherently ambiguous. This observation is important for assessing empirical findings regarding the effects of trading speed and policy making.
TSE Working Paper, n° 18-881, janvier 2018