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Putting what amounts to trading bot logic into the orders themselves seems like a bad idea for scalability. Is all order logic visible to all market participant

Putting what amounts to trading bot logic into the orders themselves seems like a bad idea for scalability. Is all order logic visible to all market participants? If so, then everyone has to run their own local market logic resolver to determine actual liquidity. If not, then true market liquidity is now opaque.

usefulcat 5y ago
The orders don’t have to be visible; invisible orders have been around for a long time.
twic 5y ago
If anyone else is faster than you, then true market liquidity is already opaque. Indeed, this is one of the criticisms of HFT - that the liquidity they present is "fake", "ghost", "phantom" liquidity, because it will be pulled at the slightest provocation. Existing mechanisms which obscure liquidity are iceberg orders, market maker protection [1] [2] [3], and various kinds of non-displayed orders [4] [5] which i confess i am not very familiar with. I think this illustrates that exchanges are sometimes willing to sacrifice a little transparency in order to encourage more liquidity provision. This is a fundamental axis of market design. At one end are classic lit exchanges, at the other end is OTC dealing, and there are all sorts of shades of grey in between. Which is most appropriate will depend on the specific balance of participants and activity in the market in question. [1] https://www.eurex.com/ex-en/trade/market-making-and-liquidity-provisioning https://www.eurex.com/ex-en/trade/market-making-and-liquidit... ("Risk protection for Market Makers") [2] https://www.cmegroup.com/confluence/display/EPICSANDBOX/Mass+Quote+Protections https://www.cmegroup.com/confluence/display/EPICSANDBOX/Mass... [3] https://www.nasdaq.com/docs/market_maker_protection_model_-_equity_derivatives_1.1--21-may-2010.pdf https://www.nasdaq.com/docs/market_maker_protection_model_-_... [4] https://www.cboe.com/us/equities/trading/offerings/non_displayed_swap/ https://www.cboe.com/us/equities/trading/offerings/non_displ... [5] https://iextrading.com/trading/order-types/ https://iextrading.com/trading/order-types/

usefulcat 5y ago

The orders don’t have to be visible; invisible orders have been around for a long time.

twic 5y ago

If anyone else is faster than you, then true market liquidity is already opaque. Indeed, this is one of the criticisms of HFT - that the liquidity they present is "fake", "ghost", "phantom" liquidity, because it will be pulled at the slightest provocation. Existing mechanisms which obscure liquidity are iceberg orders, market maker protection [1] [2] [3], and various kinds of non-displayed orders [4] [5] which i confess i am not very familiar with. I think this illustrates that exchanges are sometimes willing to sacrifice a little transparency in order to encourage more liquidity provision. This is a fundamental axis of market design. At one end are classic lit exchanges, at the other end is OTC dealing, and there are all sorts of shades of grey in between. Which is most appropriate will depend on the specific balance of participants and activity in the market in question. [1] https://www.eurex.com/ex-en/trade/market-making-and-liquidity-provisioning https://www.eurex.com/ex-en/trade/market-making-and-liquidit... ("Risk protection for Market Makers") [2] https://www.cmegroup.com/confluence/display/EPICSANDBOX/Mass+Quote+Protections https://www.cmegroup.com/confluence/display/EPICSANDBOX/Mass... [3] https://www.nasdaq.com/docs/market_maker_protection_model_-_equity_derivatives_1.1--21-may-2010.pdf https://www.nasdaq.com/docs/market_maker_protection_model_-_... [4] https://www.cboe.com/us/equities/trading/offerings/non_displayed_swap/ https://www.cboe.com/us/equities/trading/offerings/non_displ... [5] https://iextrading.com/trading/order-types/ https://iextrading.com/trading/order-types/