Digital illustration of a tennis stadium with glowing data streams, symbolizing fast trading and information flow in financial markets.

The High-Speed Advantage: How Fast Trading Impacts Market Efficiency

Beau Callahan in Business & Economy August 2025 • 4 min read.

"Uncover the secrets of fast trading and its impact on price discovery, efficiency, and profitability in today's financial markets, with real-world evidence from a unique betting exchange analysis."

In today's fast-paced financial markets, speed is a critical competitive advantage. High-frequency traders (HFTs) and other participants invest heavily in technologies and strategies that allow them to react faster to new information than their competitors. This has created a marketplace defined by speed differentials, where some traders consistently operate ahead of the curve.

Understanding the impact of this "speed race" on market quality is crucial. Market quality hinges on factors like price discovery (how quickly information is reflected in prices) and efficiency (how accurately prices reflect underlying value). The presence of fast traders can have complex and sometimes conflicting effects on these dimensions.

While the advantages of speed can lead to more accurate and timely prices, the rise of high-speed trading has also generated concern. Could faster traders potentially distort prices, moving them away from fundamental values? The answers are complex, and direct empirical evidence is difficult to obtain due to the challenges of identifying and categorizing HFT activity.

What Can Tennis Betting Exchanges Teach Us About High-Speed Trading?

Digital illustration of a tennis stadium with glowing data streams, symbolizing fast trading and information flow in financial markets.

To investigate the true impact of fast trading, researchers turned to a unique real-world setting: tennis betting exchanges, specifically focusing on "courtsiding". Courtsiding refers to the practice of placing live bets from within a tennis stadium. This seemingly niche activity provides a powerful opportunity to isolate the impact of fast-acting traders.

Courtsiders have a distinct advantage: they witness events firsthand, gaining immediate access to information before it's available to those watching on television or relying on data feeds. This creates a natural speed differential, allowing researchers to analyze how these faster-informed traders affect market dynamics.

Real-Time Data: Courtsiders directly observe match events, eliminating delays associated with television broadcasts.
Isolated Activity: Trading activity immediately following key events (like a point won) can be largely attributed to courtsiders.
Observable Outcomes: The "fundamental value" of a bet becomes clear at the end of a match, providing a benchmark for assessing market efficiency.

By analyzing betting data from Betfair (a major betting exchange) combined with detailed match data from professional tennis tournaments, the study uncovers valuable insights into the impact of fast trading on price discovery and efficiency.

The Broader Implications for Market Design

The findings of this research have important implications for the design of financial markets. They suggest that while fast traders like courtsiders can contribute to quicker price discovery, their activities may also create disadvantages for slower participants. This raises questions about the fairness and overall efficiency of markets with significant speed differentials. As regulators and exchanges grapple with the challenges posed by high-frequency trading, studies like this provide valuable insights for creating a more level playing field and ensuring that markets remain fair, efficient, and accessible to all participants.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1016/j.jebo.2018.09.020, Alternate LINK

Title: The Effect Of Fast Trading On Price Discovery And Efficiency: Evidence From A Betting Exchange

Subject: Organizational Behavior and Human Resource Management

Journal: Journal of Economic Behavior & Organization

Publisher: Elsevier BV

Authors: Paolo Bizzozero, Raphael Flepp, Egon Franck

Published: 2018-12-01

Everything You Need To Know

What is the main advantage of high-speed trading in financial markets?

The main advantage of high-speed trading in financial markets is the ability to react faster to new information than competitors. This is particularly relevant for High-Frequency Traders (HFTs) who invest heavily in technologies and strategies to gain this edge. This speed advantage directly influences price discovery and market efficiency, key factors in market quality.

How does courtsiding in tennis betting exchanges help researchers study the impact of fast trading?

Courtsiding provides a unique real-world setting to study the impact of fast trading by allowing researchers to isolate the activities of fast-acting traders. Courtsiders observe events firsthand, gaining immediate access to information before it's available through television or data feeds. This creates a clear speed differential that enables the analysis of how these faster-informed traders affect market dynamics, specifically impacting price discovery and efficiency.

What are the key characteristics of courtsiding that make it ideal for studying fast trading?

Courtsiding's suitability for studying fast trading stems from several key characteristics. First, courtsiders have access to Real-Time Data, directly observing match events without delays. Second, trading activity immediately following key events can be largely attributed to courtsiders, isolating their impact. Third, the Observable Outcomes of a bet become clear at the end of a match, providing a benchmark for assessing market efficiency, which is crucial for analyzing price discovery.

What are the potential impacts of fast trading on market quality, and what are the concerns?

Fast trading, especially by High-Frequency Traders, can lead to more accurate and timely prices, improving price discovery. However, there are concerns that it could potentially distort prices, moving them away from fundamental values. The presence of significant speed differentials raises questions about market fairness and efficiency, as slower participants may be at a disadvantage. Therefore, it's important to balance the benefits of quick price discovery with the potential risks.

What are the broader implications of high-speed trading research for financial market design?

The research on high-speed trading, including the analysis of courtsiding on Betfair, has important implications for the design of financial markets. It suggests that while fast traders can contribute to quicker price discovery, their activities may also create disadvantages for slower participants. This necessitates a focus on creating a more level playing field through regulatory actions and market structure adjustments, ultimately aiming to ensure markets remain fair, efficient, and accessible to all participants, and that the benefits of High-Frequency Traders do not come at the expense of other market participants.