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CFA Level 2
Equity Investments

Understanding High-Frequency Trading and Market Liquidity

Easy Equity Market Structure Market Microstructure

In the context of equity market structure, market microstructure refers to the mechanisms and processes that facilitate the trading of securities, focusing on how trades are executed and how price formation occurs. High-frequency traders (HFTs) have a significant role in this ecosystem.

Consider the following statement regarding High-Frequency Trading:

"High-frequency trading firms use complex algorithms and high-speed data networks to execute orders in fractions of a second, significantly influencing price movements and market liquidity."

Based on this understanding, which of the following statements accurately describes a primary feature of high-frequency trading?

Hint

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