3 ms·

What do you suggest? What features would you use to give priority to a trade?

by dsacco 9y ago

kasey_junk 9y ago
The standard response here is Budish’s auction system: https://bfi.uchicago.edu/research/working-paper/high-frequency-trading-arms-race-frequent-batch-auctions-market-design https://bfi.uchicago.edu/research/working-paper/high-frequen... Personally I think it glosses over lots of the reality of the markets but I’m ready for country to try it to see.
- osrec 9y ago
  What do you feel it glosses over?
  - kasey_junk 9y ago
    In no particular order, their solution doesn't seem to deal with: - It doesn't account for the arbitrage types that seem to bother people the most: cross-exchange arb, locality arb, regnms arb or payment for order flow. - If the discrete time chunks are very short, it doesn't seem to solve latency arb much. - If the discrete time chunks are very long, it defaults to pro-rata matching. We have pro-rata products already, they are not kind to the little guy. - Most of the really weird edge cases in exchanges happen due to so called 'exotic' order types, which are really just ways to get the exchange to atomically do something for you. In the discrete auction world I'd imagine you'd have more need for complex instructions not less. Finally, I think that the problem they are attempting to solve is fairly low priority to solve. We are operating in the lowest cost trading environment of all time. It could hardly be more fair when it comes to order execution. To throw all that out seems dumb, when there are much bigger fish to fry (such as our government bailing out one set of traders but not others).
    - ngz00 9y ago
      Just wanted to say, I really like the design of your blog and your writing style. Also, there is a minor typo in the last paragraph of the IOC/DI article.
  - thedufer 9y ago
    For one thing, it claims to eliminate the speed arms race by setting a sufficiently long gap between auctions, but depends on a bizarre assumption that there are 2 speeds at which information can get to the market, each at a particular cost. I suspect this would be better modeled as continuous, which would imply that tuning the auction gap merely moves the clearing price for additional information speed. It also doesn't cover the fact that it changes common exchange revenue streams; the necessary replacements would surely affect the market. Similarly, a lot of the more complex order types would no longer make sense, which would again have market effects. A lot of this stuff is hard to figure out, though, and trying it in the real world isn't be an obviously bad idea.

What do you suggest? What features would you use to give priority to a trade?

by dsacco 9y ago

What do you suggest? What features would you use to give priority to a trade?

The standard response here is Budish’s auction system: https://bfi.uchicago.edu/research/working-paper/high-frequency-trading-arms-race-frequent-batch-auctions-market-design https://bfi.uchicago.edu/research/working-paper/high-frequen... Personally I think it glosses over lots of the reality of the markets but I’m ready for country to try it to see.

osrec 9y ago
What do you feel it glosses over?
- kasey_junk 9y ago
  In no particular order, their solution doesn't seem to deal with: - It doesn't account for the arbitrage types that seem to bother people the most: cross-exchange arb, locality arb, regnms arb or payment for order flow. - If the discrete time chunks are very short, it doesn't seem to solve latency arb much. - If the discrete time chunks are very long, it defaults to pro-rata matching. We have pro-rata products already, they are not kind to the little guy. - Most of the really weird edge cases in exchanges happen due to so called 'exotic' order types, which are really just ways to get the exchange to atomically do something for you. In the discrete auction world I'd imagine you'd have more need for complex instructions not less. Finally, I think that the problem they are attempting to solve is fairly low priority to solve. We are operating in the lowest cost trading environment of all time. It could hardly be more fair when it comes to order execution. To throw all that out seems dumb, when there are much bigger fish to fry (such as our government bailing out one set of traders but not others).
  - ngz00 9y ago
    Just wanted to say, I really like the design of your blog and your writing style. Also, there is a minor typo in the last paragraph of the IOC/DI article.
- thedufer 9y ago
  For one thing, it claims to eliminate the speed arms race by setting a sufficiently long gap between auctions, but depends on a bizarre assumption that there are 2 speeds at which information can get to the market, each at a particular cost. I suspect this would be better modeled as continuous, which would imply that tuning the auction gap merely moves the clearing price for additional information speed. It also doesn't cover the fact that it changes common exchange revenue streams; the necessary replacements would surely affect the market. Similarly, a lot of the more complex order types would no longer make sense, which would again have market effects. A lot of this stuff is hard to figure out, though, and trying it in the real world isn't be an obviously bad idea.