Research On The Influence Of Algorithmic Trading In Transaction Cost And Market Quality Based On Simulated Stock Market

In order to study the impact of algorithmic trading on the stock market, this paper constructs the simulated market based on the double auction mechanism, ensuring the model close to the real market. By adopting VWAP and IS trading strategy, this paper studies whether the algorithmic trading can effectively reduce the investors'transaction costs in the stock market, and its impact on market quality.Comparing the market with algorithmic traders with the market without algorithmic traders, this paper finds that algorithmic trading is indeed able to reduce the transaction cost and control the trading risk for the investors in the stock market. VWAP algorithm not only reduces the average transaction cost of the institutional investors, but also ensures a more stable market (the standard deviation of the cost is much smaller). IS algorithm can also reduce the transaction cost for the investors and help the investors obtain more. Although IS algorithm ensures institutional investors to complete transactions faster and earlier, it is less effective than VWAP algorithm.Algorithmic trading can also lower the volatility of the stock market by reducing the shock of large orders on the market. And the limit orders generated by algorithmic trading will bring better liquidity, which is updated real-timely. It shows that algorithmic trading plays an active role in improving the quality of the stock market.