Informed Traders as Liquidity Providers: Evidence from the German Equity Market

Most market places in today's exchange industry operate on fully electronic trading systems. The predominant form of trading systems is the open limit order book pooling all buy and sell limit orders in one single order book. The attractiveness of an order book is determined by its liquidity. Consequently, liquidity is the competitive factor for an exchange, However, it is not the exchange that provides the liquidity but the limit orders standing in the order book. The question is: Who are these traders that provide liquidity on a voluntary basis?