Other than seemingly perverse incentives, is there a good reason not to quantize trading time?
> Our analysis of the TWSE’s transition clearly demonstrates that continuous trading results in better liquidity provision, lower bid-ask spreads, more stable prices and enhanced price discovery, as well as higher trading volumes.
If we consider the function of a market to be to arrive at prices that lead to the optimal allocation of the goods sold on that market, intuitively it would seem that there should be a limit on how fast trades need to propagate to achieve that, and the limit would be tied to how fast new information relevant to the producers and consumers of those goods comes out.
I don't think I'm expressing this well but the idea is that prices of goods should be tied to things that actually affect those goods. That's generally going to be real world news.
If you turn up trading speed much past the speed necessary to deal with that I'd expect that you could end up with the market reacting to itself. Kind of like when you turn an amplifier up to much and start getting distortion and even feedback.
Broadly speaking, yes. Turning down liquidity increases spreads which affects which sorts of companies are able to raise what sorts of capital in those markets.
The paradox of HFT is that it's much smaller and more efficient than the slower, manpower-heavy Wall Street industry it replaced. It's just weird, which makes it easy to demonise in popular politics.
Markets facilitate the buying and selling of securities, providing a regulated platform for companies to raise capital and for investors to trade assets based on supply and demand. Reducing spreads is optimal for everyone. Your making up some kind of pie in the sky idea of how markets should exist. The folks doing HFT or other type of flat at the end of day shops do not have the capital to move prices as much as you would like to think. Even if they did cause some large movement in the stock, there is a good chance there is a larger fish ready to take the other side.
If you have a bunch of orders at the same price on the same side, and an order comes in from the other side that crosses those orders (or there is an auction and there are orders on the other side which cross), how do you decide which of the resting orders at the same price should be filled first?
The most common way is that the first order to arrive at the exchange at that price gets filled first, and for that reason being fast is inherently advantageous.
This is the sort of good idea that just entrenches the algos. (Former algorithmic derivatives trader.)
For small orders, these delays make no difference. For a big order, however, it could be disastrously embarassing. So now, instead of that fund's trader feeling comfortable directly submitting their trade using off-the-shelf execution algos, they'll route it to an HFT who can chunk it into itty bity orders diarrhea'd through to average out the randomness of those delays.
Sort by hash. Impossible to game unless you can break the hash function.
Retail rarely hits an exchange.
You might get "games" around people oversizing orders to try to get more "weight" to their orders, but that would be inefficient behaviour that could in turn be exploited, so people would still be incentivised to keep their orders honest.
Resting orders from previous batches could have priority, if you want. You'd probably end up doing something with assignment of equal priority orders that looks like option assignment, basically random selection of shares among the pool of orders.
Personally, I'd fill unconditional market orders first, then market all or nothing (if fillable), then sort limit orders by price and from within limit orders of the same price, unconditional first, then all or nothing, then all or nothing + fill or kill.
I don't know if I would assign shares proportional to orders or to shares in orders. Probably shares in orders. Might be gamed, but putting in a really big order because you want to capture a couple shares is risky.
I have heard that some real-life venues have implemented the terrible version of this proposal instead though.
I'm with you. Every 30 seconds. Cap the power of connection speed in trading. Trading should be based on the value of the item being traded, not on how short the fiber run is.
What about an empirical argument? Microsecond trading reduces spreads and decreases volatility. It looks useless, so people try to regulate it away, and every time they do spreads widen and trading firms' and banks' profits fatten.
> Every 30 seconds. Cap the power of connection speed in trading
I'd go back to Wall Street if this happened: it would make market making profitable again.
We need to kill "front running" as a criticism of low-latency algo trding with fire. It's garbage.
Front running is highly illegal and is where a broker knows a client is going to do a big trade due to inside information and trades on the account of others (themselves, typically) to exploit that inside information. It's a straight up cheat.
Inferring from market data alone which way a price will move is legal, honest, been attempted since forever and absolutely fine. Also very, very difficult. Anyone who can do it makes the market more efficient, reduces the money available by doing it (which goes into investors pockets through tighter spreads) and really earns their money. You don't have to like them if you don't want to but it's worlds apart from front running using inside information.
Where did algo trading profit come from? Won by being more competitive from brokers profit with a good chunk of that broker profit going to investors. Spreads are tighter.
Where are the clients' yachts? Well tech did something about the some of the broker ripoffs earning their yachts - which puts money in your pocket.
Or put another way, how should we determine which orders are least likely to get filled?
You have ignored the whole issue of how are you then ordering those contracts in 30second batches?
The larger the time interval the larger the risk on pricing. If I am selling and it’s a large time to trade I am going to probably want to sell it for a higher price. The same goes on the bid.