3 ms·

Aren't all of those problems solvable? 1) Use ticks less than an hour. Say, one second. Or even one minute--however long it takes to settle an auction. You wil

Aren't all of those problems solvable? 1) Use ticks less than an hour. Say, one second. Or even one minute--however long it takes to settle an auction. You will quickly get a sense of the price. 2) If there are multiple bids on the books, randomize priority at the bid level. The goal is to remove HFT, not create a new HFT with more granular resolution.

30thElement 13y ago
Lowering the interval makes the effect less pronounced, but it's still there. When you have fixed intervals the order book will keep increasing in size until the trades execute on the 1 second interval or whatever it is, and the book will be larger than for our current instantaneous ticks. Larger book means wider spread, as basic game theory says when you have more participants you need a stronger hand to have the same odds, so if you want that trade to execute you put it way outside the last price. HFT firms narrow the spread and take the difference as profit, as they don't really care if 1 particular order executes so they play closer to the last price. Randomizing the execution order makes the spread even wider, because now you need to beat everyone instead of just tying if you want to guarantee execution. And again, the HFT firms don't care if any particular order executes. Although randomizing the order would probably reduce the incentive to co-locate, but I'm guessing the larger firms would still want quicker access to the last price, just in case. Also, in all of this I'm assuming no one outside of the exchange can view the actual book, just the last price. If you let people see the full book, as they can now, this is all a wash anyway as they'll just "trade" by placing and cancelling orders right up until the next tick.
hft_throwaway 13y ago
If my orders get random priority I will just spray a bunch of smaller orders onto each level. Look at the Eurodollar markets. You get execution priority based on size there and traders just send massively oversized orders. Why is the goal to remove HFT?

30thElement 13y ago

Lowering the interval makes the effect less pronounced, but it's still there. When you have fixed intervals the order book will keep increasing in size until the trades execute on the 1 second interval or whatever it is, and the book will be larger than for our current instantaneous ticks. Larger book means wider spread, as basic game theory says when you have more participants you need a stronger hand to have the same odds, so if you want that trade to execute you put it way outside the last price. HFT firms narrow the spread and take the difference as profit, as they don't really care if 1 particular order executes so they play closer to the last price. Randomizing the execution order makes the spread even wider, because now you need to beat everyone instead of just tying if you want to guarantee execution. And again, the HFT firms don't care if any particular order executes. Although randomizing the order would probably reduce the incentive to co-locate, but I'm guessing the larger firms would still want quicker access to the last price, just in case. Also, in all of this I'm assuming no one outside of the exchange can view the actual book, just the last price. If you let people see the full book, as they can now, this is all a wash anyway as they'll just "trade" by placing and cancelling orders right up until the next tick.

hft_throwaway 13y ago

If my orders get random priority I will just spray a bunch of smaller orders onto each level. Look at the Eurodollar markets. You get execution priority based on size there and traders just send massively oversized orders. Why is the goal to remove HFT?