Researchers from the Financial Conduct Authority used stock exchange message data to quantify the negative aspect of high frequency trading, known as “latency arbitrage.” The key difference between message data and widely familiar limit order book data is that message data contain attempts to trade or cancel that fail.
This allows observations of both winners and losers in a race, whereas in limit order book data you cannot see the losers, so you cannot directly see the races. Researchers find that latency arbitrage races are very frequent (one per minute for FTSE 100 stocks), extremely fast (the modal race lasts 5-10 millionths of a second), and account for a large portion of overall trading volume (about 20%).
Race participation is concentrated, with the top 3 firms accounting for over half of all race wins and losses. Main estimates suggest that eliminating latency arbitrage would reduce the cost of trading by 17% and that the total sums at stake are on the order of $5 billion annually in global equity markets.