Suppose I found a small inefficiency in the market on the micro level, and I have an automated trading strategy to take advantage of it. By "micro", I mean the average duration of a trade of 2 minutes or so. Since the strategy involves very high frequency trading strategy, and the average profit per trade is very small, the bid/ask spread becomes very important (the system always palces market orders). So, my question is, what is the market with the lowest bid/ask spreads? And I mean really low (perhaps even lower than the common 1 point ($5) bid/ask spread on one DJIA E-Mini contract?). Thanks.

Thats called playing the spread and no longer really works after the conversion fomr fractions to decimals.

Nonlinear, Optioncoach and Hypostomus have nailed it for you. I will add one more. Depth of market, ie volume. Dont forget tick value. Tight spread, volatility, and volume. Kospi options NQ, ER2 Many stocks. And my choice. SPY. If you're willing to sacrifice one characteristic for more of another. Then... US Bond futures Bund futures. Dax futures HSI futs Eurodollar futs Many stocks. Some ETF's When you get really crazy and have about 500k-1m and account at UBS, Forex.

You should look for the spreads in relation to the volatility.. What is the use of a spread of .001 when the volatility(high minus low) is only .002

"Would you perhaps like to rephrase the question wrt average volatility? Think about it." Right, it was worth thinking about it. The tightest spread would not do me any good if the market doesn't move. So, here is the rephrased question: Let V be the average volatility (on a 1 minute chart), and let S be the average bid/ask spread. Defind R as the ratio of the two: R = V / S Which market has the highest value of R?

Let me put it slightly differently. A typical run in NQ is 5 points, the spread is almost always the tick (0.25), so your R is 20.

An incredibly crude list. Have no idea as far as spread. Some of these I know will be wide. But this is from yesterday. See how they do today. ATI BA BHI BIDU BSC CI DO EEM FCX GOOG GRMN GS LVS NE OIH OXY PBR PCU PD RTI SHLD SLB STLD SU WCC

"Let me put it slightly differently. A typical run in NQ is 5 points, the spread is almost always the tick (0.25), so your R is 20." To make it even more scientific, I would express both the spread and the volatility in terms of dollars per $100,000 amount traded, so that the ratio R can be compared to that for stocks or other instruments. So, for 1 NQ contract valued roughly at $29,760, the spread of 0.25 points is equivalent to 20 * 0.25 = $5, which is about $17 per $100,000 traded. The volatility is 5 points * $20 = $100 per contract, or $336 per $100,000 traded. Then the R is: R = V / S = $336 / $17 = roughly $20.