4 ms·

That's not a solution, it would mean most market makers instantly left your exchange, or just quote really widely (providing a worse spread, so people wishing t

That's not a solution, it would mean most market makers instantly left your exchange, or just quote really widely (providing a worse spread, so people wishing to trade have to pay a worse price), because holding your orders in the market for a minute is incredibly dangerous given how much the value of the underlying product could move at any time, especially when it's correlated with something traded on another exchange.

raxxorrax 6y ago
It could be a solution if markets agreed to the same rules. To me, this form of trading has questionable economic effects in my opinion.
- logicchains 6y ago
  >To me, this form of trading has questionable economic effects in my opinion. Have you ever actually researched the economic effects, or is that just a gut feeling? If you look at it historically, as machines have come to dominate market making, spreads (the difference between buy and sell price) have continually fallen, meaning institutional investors and retailers can buy what they want at a better price. Machines are able to offer these better deals because they know they can get out of their position faster if the market suddenly moves; removing their ability to react faster would remove their ability to offer better prices.
  - raxxorrax 6y ago
    I actually did read about it. Wikipedia alone can enlighten you about respective controversies. I think critical voices sound more reasonable but it is an open question at least. It is still my opinion as stated. Show me the produce, some say it is liquidity, and I withdraw my criticism.
    - logicchains 6y ago
      I don't see any controversies mentioned on https://en.wikipedia.org/wiki/Market_maker https://en.wikipedia.org/wiki/Market_maker. https://en.wikipedia.org/wiki/High-frequency_trading https://en.wikipedia.org/wiki/High-frequency_trading mentions some controversies about high-frequency trading in general, but none specifically about market making.
  - rdm70 6y ago
    The part about spreads being smaller because machines are making markets is true, but there are important caveats. The one that comes to mind first is that the tight market is only there for small quantities. If you want to trade in size, then you are out of luck. Machine based market making tends to work well when markets are operating "normally". When some regime-changing news comes out, it's not uncommon for the over-fit algorithms to perform badly so the managers just turn them off. I.e. liquidity disappears just when it's needed most. https://www.wsj.com/articles/thinning-liquidity-in-key-futures-market-worries-traders-11553515200 https://www.wsj.com/articles/thinning-liquidity-in-key-futur...
    - gpderetta 6y ago
      well, yes, if you have a market moving trade, you'll have to pay a premium for it to be executed. MM are not there to give money away. Similarly, if your house is on fire, it is hard to complain that buyers go away until they can evaluate how much the hashes are worth. Market makers mostly provide a service for retail investors.
  - gowld 6y ago
    To me that sounds like customers are getting a slight discount on everyday transactions, but getting creamed the market suddenly moves faster
bebna 6y ago
That is why I call that gambling and not investing.
- logicchains 6y ago
  Why do you call it gambling? The market maker doesn't want to take a position on the stock, that's why he tries to get out quickly if it starts moving. He just wants to provide liquidity (be willing to buy and sell to anyone at any time, so that buyers don't need to wait for a matching seller to come along), and collect a small fee for that in the form of a spread.
  - gowld 6y ago
    But who are the customers? Why do investors need orders filled instantly? It seems the only customers of this service are day-trading troublemakers.
- deleted 6y ago
  [deleted]
buran77 6y ago
Usually what works for such abuses is either to charge extra (tiers depending on volume) to discourage abuse or at lest to cover losses, or throttling the biggest offenders when getting unreasonable peaks in order to keep the system always running. Both are used in many other sectors. If you have "industrial level" needs you usually have to pay extra either for the service or for additional infrastructure needed to provide you that service, or you simply get everything throttled to sustainable level (think water, electricity, etc). Most traders would not see any difference and the ones that would will have to think twice before DoSing.
- logicchains 6y ago
  >They could put tiered charging and above a certain volume of transactions apply an additional fee (one time or per transaction). This is a model used in many other sectors. It's actually quite common for exchanges to offer discounts/rebates to firms that trade more, because these firms are essentially providing a service to the exchange (market making, and generating turnover). Much like how other industries offer discounts for buying in bulk. >The other option is to rate limit the biggest offenders when the system's performance limit is reached. I don't know why people always suggest solutions like this when it comes to exchanges. If it was an e-commerce service and somebody suggested "let's rate limit customers to reduce load", it's be shot down as a lazy solution (and a great way to lose customers). If a platform isn't good enough to support the load its customers place on it, then it needs to be improved. If AWS goes down during the world's biggest shopping day, we don't blame the customers, we blame Amazon.
  - buran77 6y ago
    > It's actually quite common for exchanges to offer discounts/rebates to firms that trade more I reworded a bit to give a better idea of what I meant. In general there are bulk discounts but there's always some form of "QoS". Either you get throttled above a ceiling, or you pay through the nose to have that ceiling higher for yourself and have everyone else throttled. All tiered systems work like this. The fixed price goes up and gives you access to better service, higher limits, lower price per usage, etc. As long as you don't have virtually unlimited capacity you can't treat your system as if you do. Mobile operators have to do the same. They charge a base contract price that sets the tier, then charge per usage within that tier, give different ceilings, QoS priorities, and throttling rates. And no matter how big you are as a customer at some point you either pay a surcharge or get throttled so the system stays up and other customers are also served. (source: I worked both for a large telco, and for a customer that payed ~3million E per month to get the consumption costs for min/MB down to almost 0). > I don't know why people always suggest solutions like this when it comes to exchanges. By any chance do the suggestions always come after the exchange was down due to high transaction volumes? Sure, they could implement unlimited capacity. But since this is a tad unrealistic and actually crashing the system is worse than limiting to keep it just below crashing, perhaps the suggestion makes sense. There aren't many sectors that I can think of which give you "unlimited usage no matter what". There's "rate limiting" even in hospitals, where lives are at stake.

raxxorrax 6y ago

It could be a solution if markets agreed to the same rules. To me, this form of trading has questionable economic effects in my opinion.

logicchains 6y ago
>To me, this form of trading has questionable economic effects in my opinion. Have you ever actually researched the economic effects, or is that just a gut feeling? If you look at it historically, as machines have come to dominate market making, spreads (the difference between buy and sell price) have continually fallen, meaning institutional investors and retailers can buy what they want at a better price. Machines are able to offer these better deals because they know they can get out of their position faster if the market suddenly moves; removing their ability to react faster would remove their ability to offer better prices.
- raxxorrax 6y ago
  I actually did read about it. Wikipedia alone can enlighten you about respective controversies. I think critical voices sound more reasonable but it is an open question at least. It is still my opinion as stated. Show me the produce, some say it is liquidity, and I withdraw my criticism.
  - logicchains 6y ago
    I don't see any controversies mentioned on https://en.wikipedia.org/wiki/Market_maker https://en.wikipedia.org/wiki/Market_maker. https://en.wikipedia.org/wiki/High-frequency_trading https://en.wikipedia.org/wiki/High-frequency_trading mentions some controversies about high-frequency trading in general, but none specifically about market making.
- rdm70 6y ago
  The part about spreads being smaller because machines are making markets is true, but there are important caveats. The one that comes to mind first is that the tight market is only there for small quantities. If you want to trade in size, then you are out of luck. Machine based market making tends to work well when markets are operating "normally". When some regime-changing news comes out, it's not uncommon for the over-fit algorithms to perform badly so the managers just turn them off. I.e. liquidity disappears just when it's needed most. https://www.wsj.com/articles/thinning-liquidity-in-key-futures-market-worries-traders-11553515200 https://www.wsj.com/articles/thinning-liquidity-in-key-futur...
  - gpderetta 6y ago
    well, yes, if you have a market moving trade, you'll have to pay a premium for it to be executed. MM are not there to give money away. Similarly, if your house is on fire, it is hard to complain that buyers go away until they can evaluate how much the hashes are worth. Market makers mostly provide a service for retail investors.
- gowld 6y ago
  To me that sounds like customers are getting a slight discount on everyday transactions, but getting creamed the market suddenly moves faster

bebna 6y ago

That is why I call that gambling and not investing.

logicchains 6y ago
Why do you call it gambling? The market maker doesn't want to take a position on the stock, that's why he tries to get out quickly if it starts moving. He just wants to provide liquidity (be willing to buy and sell to anyone at any time, so that buyers don't need to wait for a matching seller to come along), and collect a small fee for that in the form of a spread.
- gowld 6y ago
  But who are the customers? Why do investors need orders filled instantly? It seems the only customers of this service are day-trading troublemakers.
deleted 6y ago
[deleted]

buran77 6y ago

Usually what works for such abuses is either to charge extra (tiers depending on volume) to discourage abuse or at lest to cover losses, or throttling the biggest offenders when getting unreasonable peaks in order to keep the system always running. Both are used in many other sectors. If you have "industrial level" needs you usually have to pay extra either for the service or for additional infrastructure needed to provide you that service, or you simply get everything throttled to sustainable level (think water, electricity, etc). Most traders would not see any difference and the ones that would will have to think twice before DoSing.

logicchains 6y ago
>They could put tiered charging and above a certain volume of transactions apply an additional fee (one time or per transaction). This is a model used in many other sectors. It's actually quite common for exchanges to offer discounts/rebates to firms that trade more, because these firms are essentially providing a service to the exchange (market making, and generating turnover). Much like how other industries offer discounts for buying in bulk. >The other option is to rate limit the biggest offenders when the system's performance limit is reached. I don't know why people always suggest solutions like this when it comes to exchanges. If it was an e-commerce service and somebody suggested "let's rate limit customers to reduce load", it's be shot down as a lazy solution (and a great way to lose customers). If a platform isn't good enough to support the load its customers place on it, then it needs to be improved. If AWS goes down during the world's biggest shopping day, we don't blame the customers, we blame Amazon.
- buran77 6y ago
  > It's actually quite common for exchanges to offer discounts/rebates to firms that trade more I reworded a bit to give a better idea of what I meant. In general there are bulk discounts but there's always some form of "QoS". Either you get throttled above a ceiling, or you pay through the nose to have that ceiling higher for yourself and have everyone else throttled. All tiered systems work like this. The fixed price goes up and gives you access to better service, higher limits, lower price per usage, etc. As long as you don't have virtually unlimited capacity you can't treat your system as if you do. Mobile operators have to do the same. They charge a base contract price that sets the tier, then charge per usage within that tier, give different ceilings, QoS priorities, and throttling rates. And no matter how big you are as a customer at some point you either pay a surcharge or get throttled so the system stays up and other customers are also served. (source: I worked both for a large telco, and for a customer that payed ~3million E per month to get the consumption costs for min/MB down to almost 0). > I don't know why people always suggest solutions like this when it comes to exchanges. By any chance do the suggestions always come after the exchange was down due to high transaction volumes? Sure, they could implement unlimited capacity. But since this is a tad unrealistic and actually crashing the system is worse than limiting to keep it just below crashing, perhaps the suggestion makes sense. There aren't many sectors that I can think of which give you "unlimited usage no matter what". There's "rate limiting" even in hospitals, where lives are at stake.