3 ms·

> What stops an exchange from quantizing to, say, a second or so? That wouldn't be fair, an order book is a line, such a rule would allow people to cut line an

> What stops an exchange from quantizing to, say, a second or so? That wouldn't be fair, an order book is a line, such a rule would allow people to cut line and get shares at better prices before you allowing them to drive the price up or down even though you were in line before them. > As far as more decimals, it doesn't sound plausible that all the market makers are gonna come up with the same price to 8 decimals. So the time priority will give way a bit to price priority. That's how it used to be, compete on price first, but a minimum decimal put in place by law, the sub penny rule, to try and dampen HFT, it's only made latency more important since HFT traders can no longer compete on price. And he's right, there's always a minimum price below which there is no profit, so whoever posts that price first wins. Orders compete on time and price because that what is fair. Latency is inherently part of fair trading, you can't remove it and keep the market fair.

kbenson 11y ago
> That wouldn't be fair, an order book is a line, such a rule would allow people to cut line and get shares at better prices before you allowing them to drive the price up or down even though you were in line before them. Well, I think the problem is less that the book is a line and it's not fair (the definition of fair would change in this system, it would be fair that you had the same chance as everyone else in that time frame), but more that you open yourself up to different problems, such as the larger players being able to split their orders up in to many smaller orders, to increase they chance a large percentage of their orders will go through before any supply has dried up. There's actually another industry that has to deal with these problems, and especially with pecieved fairness. Online event ticketing. Ticketmaster runs a queue. AXS runs a randomized pool. Both are gamed. Interestingly, I think some brokers actually do colocate close to TM servers, which makes the parallel fairly obvious.
- eru 11y ago
  Online event ticketing could get rid of scalping completely, by auctioning off the tickets, if there's excess demand.
  - kbenson 11y ago
    That wouldn't eliminate the problem. Demand changes over time, and supply is fixed. There are quite a few ways to invest in tickets. One is to buy all the tickets on an event that is expected to sellout immediately. Another is to find an event that you expect to sellout at some time before the event that will allow enough time for demand to build, and you buy tickets before it sells out. In the end, ticket prices change over time, therefore there will be a market. Even if the primary seller (e.g. TicketMaster) raises prices, if you bought at a time when they were cheaper, you can resell at a profit. Event ticketing is a market, and as such there will be people that want to invest (even if it's just fans who intended to go and then decided they couldn't, or the money they could get for the tickets is too much to pass up). Scalpers (brokers) provide a service, liquidity. Often they go too far, and use technology to get tickets in unethical ways (ignoring site policies, bypassing captchas, using software to tie up thousands of tickets they have no intention of buying, etc). But the fact that they continue to exist is because there is demand (and now TicketMaster is in on the game as well, their TM+ service allows you to resell tickets on their site along-side their own, unsold tickets).
MichaelGG 11y ago
This isn't true. I've been reading up on this, and there are markets that sorta do exactly this. "Call markets" instead of continous markets, I think? (Or a hybrid with "crossing" markets?) One example is POSIT where you submit orders and the matching rules are not a time line, but use other criteria (price, size of order). Even some continous markets give size priority. And to the extent you can "cut in line", that's the whole point of a quantized trading period. Instead of rushing to the best price, anyone that orders at the same price will get filled equally. This kills the need for speed. (The trick is probably in making cancels take place in the next quantized period.) As far as sub penny, presumably different firms would have different costs, so the level of profitability would be different. While dominated by exchange fees (or rebates), at 8 decimals there's still room to compete. (Perhaps with new order types that allow displaying your quote rounded, so as to not trigger another feedback loop where firms keep lowering by 0.00000001.)
- gnaritas 11y ago
  You can only use other criteria, when the others differ. For the same size and same price order, what possible argument can be made to fill the last arriving order first and still claim a fair market? At some point, latency always matters. If you randomize so latency doesn't matter, you just create a system where those with more capital get more orders. However you want to "fix" it, you're still going to be making a system that isn't fair to someone. Most people would agree that waiting in line is the most fair option IMHO, and that's proven out by normal human behavior in the day to day world.
  - MichaelGG 11y ago
    What possible argument? Simple: This exchange works on a 5-second quanta. All orders arriving within a quanta are treated equally. How is that unfair at all? Like I said, there are systems that do exactly this.
    - harmegido 11y ago
      It doesn't work though. Lets say there are 500 lots bid at a price and 700 lots offered at the same price. Which of those 700 lots on the offer gets filled once the 5-second call occurs?

kbenson 11y ago

> That wouldn't be fair, an order book is a line, such a rule would allow people to cut line and get shares at better prices before you allowing them to drive the price up or down even though you were in line before them. Well, I think the problem is less that the book is a line and it's not fair (the definition of fair would change in this system, it would be fair that you had the same chance as everyone else in that time frame), but more that you open yourself up to different problems, such as the larger players being able to split their orders up in to many smaller orders, to increase they chance a large percentage of their orders will go through before any supply has dried up. There's actually another industry that has to deal with these problems, and especially with pecieved fairness. Online event ticketing. Ticketmaster runs a queue. AXS runs a randomized pool. Both are gamed. Interestingly, I think some brokers actually do colocate close to TM servers, which makes the parallel fairly obvious.

eru 11y ago
Online event ticketing could get rid of scalping completely, by auctioning off the tickets, if there's excess demand.
- kbenson 11y ago
  That wouldn't eliminate the problem. Demand changes over time, and supply is fixed. There are quite a few ways to invest in tickets. One is to buy all the tickets on an event that is expected to sellout immediately. Another is to find an event that you expect to sellout at some time before the event that will allow enough time for demand to build, and you buy tickets before it sells out. In the end, ticket prices change over time, therefore there will be a market. Even if the primary seller (e.g. TicketMaster) raises prices, if you bought at a time when they were cheaper, you can resell at a profit. Event ticketing is a market, and as such there will be people that want to invest (even if it's just fans who intended to go and then decided they couldn't, or the money they could get for the tickets is too much to pass up). Scalpers (brokers) provide a service, liquidity. Often they go too far, and use technology to get tickets in unethical ways (ignoring site policies, bypassing captchas, using software to tie up thousands of tickets they have no intention of buying, etc). But the fact that they continue to exist is because there is demand (and now TicketMaster is in on the game as well, their TM+ service allows you to resell tickets on their site along-side their own, unsold tickets).

MichaelGG 11y ago

This isn't true. I've been reading up on this, and there are markets that sorta do exactly this. "Call markets" instead of continous markets, I think? (Or a hybrid with "crossing" markets?) One example is POSIT where you submit orders and the matching rules are not a time line, but use other criteria (price, size of order). Even some continous markets give size priority. And to the extent you can "cut in line", that's the whole point of a quantized trading period. Instead of rushing to the best price, anyone that orders at the same price will get filled equally. This kills the need for speed. (The trick is probably in making cancels take place in the next quantized period.) As far as sub penny, presumably different firms would have different costs, so the level of profitability would be different. While dominated by exchange fees (or rebates), at 8 decimals there's still room to compete. (Perhaps with new order types that allow displaying your quote rounded, so as to not trigger another feedback loop where firms keep lowering by 0.00000001.)

gnaritas 11y ago
You can only use other criteria, when the others differ. For the same size and same price order, what possible argument can be made to fill the last arriving order first and still claim a fair market? At some point, latency always matters. If you randomize so latency doesn't matter, you just create a system where those with more capital get more orders. However you want to "fix" it, you're still going to be making a system that isn't fair to someone. Most people would agree that waiting in line is the most fair option IMHO, and that's proven out by normal human behavior in the day to day world.
- MichaelGG 11y ago
  What possible argument? Simple: This exchange works on a 5-second quanta. All orders arriving within a quanta are treated equally. How is that unfair at all? Like I said, there are systems that do exactly this.
  - harmegido 11y ago
    It doesn't work though. Lets say there are 500 lots bid at a price and 700 lots offered at the same price. Which of those 700 lots on the offer gets filled once the 5-second call occurs?