4 ms·
The company who has the best latency would still beat the competitors.
by VMG 6y ago
The company who has the best latency would still beat the competitors.
- gspr 6y agoAre you sure about that? They would on average perhaps be a slight bit faster, but if the randomized delays are an order of magnitude larger than the latency, they may not be able to do anything useful with that advantage.
- bryanrasmussen 6y agowouldn't it be like this? If the delays are randomized then you have as good as chance of getting them as your competitors. On delayed times you will have a bad chance of winning, but in comparison to others with the same delays your latency beats theirs, on non-delayed times your latency beats non-delayed competitors and really beats delayed competitors. Thus in the end the best latency should win biggest on non-delayed trades, and on delayed trades lose least.
- gspr 6y agoUnless that uncertainty now means that your time and resources is best spent elsewhere than shaving ms off your latency.
- zodiac 6y agoWell, think through some toy examples. Suppose there is a market without order matching (again, toy example) and one market participant enters an extremely mispriced order, so the first person to fill that order wins. Even in the presence of random delays, the participant with the lowest-latency connection has a higher chance of filling the order than anyone else. (There are other anomalies, e.g. participants are now incentivized to have as large a number of distinct connections and hence "chances to roll low" on the randomized delay as possible).
- ginko 6y agoThey could collect all issued transactions in a ~100ms time window, process them in a randomized order, and publish new prices after that.
- zodiac 6y agoThis mechanism ("batch auctions") are not immune to rewarding low-latency connections. The details depend on the exact auction mechanism but the general idea is that you want to join the batch as late as possible (at any moment in time when you make a decision to join the batch, you are never worse off if you wait a while before joining) and low-latency connections can afford to join later. In fact with your exact proposal, assuming everyone has a connection with at most (say) 50ms latency, no one will join the batch in the first 50ms, which (I think) magnifies the low-latency advantage.
- magicalhippo 6y agoSo randomize the batch window length as well then, say 10-100ms.
- zodiac 6y agoIf you make a decision to join in the (say) the 5th ms of the batch auction and you have a latency of 1ms, you are still no worse off if you decide to wait 4ms before joining the batch.
- teempai 6y agoYou can solve for this with a commit and reveal scheme, where trades with hidden price and size are committed in the first period and revealed and settled in the second period. The advantage of speed or waiting until the end is mitigated as you can receive no additional information either way.