In thinking about market incentives, one observer has noted that trading rules and structures have grown to matter crucially as trading speeds have increased – in her words, “At very fast speeds, only the [market] microstructure matters.” 8 Trading algorithms are, after all, simply a set of rules, and they will necessarily interact with and optimize against the rules of the trading platforms they operate on.
If trading is at nanoseconds, there won’t be a lot of “fundamental” news to trade on or much time to formulate views about the long-run value of an asset; instead, trading at these speeds can become a game played against order books and the market rules.