How Does High-Frequency Trading (HFT) Influence Slippage during Periods of High Volatility?

During high volatility, HFT firms rapidly adjust their quotes, often pulling back liquidity (canceling limit orders) to avoid adverse selection, which thins the order book. This reduction in depth exacerbates slippage for non-HFT market orders.

However, HFT can also quickly provide new liquidity after a price shock, potentially reducing the duration of high slippage. Their speed means they are often the first to react to price changes, contributing to both the cause and eventual correction of slippage.