  Nearly one-half of all trades in financial markets are executed by
high-speed, autonomous computer programs -- a type of trading often called
high-frequency trading (HFT). Although evidence suggests that HFT increases the
efficiency of markets, it is unclear how or why it produces this outcome. Here
we create a simple model to study the impact of HFT on investors who trade
similar securities in different markets. We show that HFT can improve liquidity
by allowing more transactions to take place without adversely affecting pricing
or volatility. In the model, HFT synchronizes the prices of the securities,
which allows buyers and sellers to find one another across markets and
increases the likelihood of competitive orders being filled.
