[mrchicity]

What about derived liquidity? A lot of liquidity in ETFs, futures, foreign exchange, dual-listed stocks and interest rate products works this way. Traders will do things like buy futures and sell correlated ETFs to hedge, buy ETFs and sell the basket of stocks it holds, and so on, as a way of making markets.

Because the markets are fast, there is less risk that their hedging product will "run away" from them before they can execute. Since the risk is low, they can make a very competitive and tight market. If they had a 100ms delay to hedge, they would need to make a bigger spread to compensate for the risk.