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The best fix to wasteful HFT is actually to increase the precision of prices on the exchange. The reason why these races are a thing is that prices can only cha
by 0815test 8y ago
The best fix to wasteful HFT is actually to increase the precision of prices on the exchange. The reason why these races are a thing is that prices can only change in fixed and sometimes relatively large increments, such as one cent, or perhaps more. Allowing prices to change in smaller increments ought to be good for both increasing liquidity, and removing the incentive for traders (humans or automated) to 'rush' to the market so that their quotes will take precedence over others.
- pgwhalen 8y agoWhat is "wasteful" about HFT and how would it be reduced with smaller tick sizes? It seems like there would need to be considerably more order activity with smaller tick sizes. I understand the intuition that the ability to compete more on price should reduce the need to compete on speed, but surely it's more complicated than that. Would love to see some research if it exists.
- raviolo 8y agoExchanges do very detailed studies of what tick sizes should be, as well as setting fifo/pro-rata ratios. Many products that have seemingly large tick sizes like eg treasuries or vix would not work otherwise. MMs will not be compensated enough for taking risk and will leave, liquidity will dry up, then liquidity-takers who are unable to execute desired size will also leave.
- mruts 8y agoThere were some dark pools that were offering sub-cent pricing. But the SEC fined them and made them stop.