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Comment by kylebrown | Hacker News Reader

The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response[1][2] is a must-read. The tldr; is that a continuous mechanism (sequential trade processing) only looks efficient in time-space, but is actually inefficient in volume-space (most of the volume trades at stale prices). The solution is discrete batch auctions (batch trade processing).

1. slides: http://faculty.chicagobooth.edu/eric.budish/research/HFT-Fre... 2. paper: http://faculty.chicagobooth.edu/eric.budish/research/HFT-Fre...

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This is really interesting, but doesn't it presume that there's only one trading venue for each instrument, and that instruments aren't correlated?

You can make time discrete for a single auction, but the time between auctions still has to be continuous unless everything's traded in a single exchange, which can't in reality happen even if we want it to (and we probably don't).

As I understand it, most of the most dramatic HFT stuff is already targeting multi-venue trades or correlations.

I think it is modeled in terms of endogenous vs exogenous entry. But I might be wrong, please correct me if I misunderstood.

It's obvious that they see the issue, since the examples in their slide deck are about correlation between different securities and between the same security trading on different exchanges. What I don't see is how batch auctions get around the distributed systems problem; we're still talking about an eventually-consistent system, right? There still must be opportunities for sniping, right?

(I'm not smart enough to know the answer, which is why I'm asking).

Decentralized assets[1] (technically possible already today, but not yet used for any high-volume instrument) have a single trading venue, namely the blockchain(s) on which the assets live. If multiple chains are involved[2][3], each individual trade is still atomic, but there would be a more complex ordering of trades: you could have trades which take longer than others to occur, and failed trades would also be publicly visible.

[1] https://en.bitcoin.it/wiki/Colored_Coins

[2] https://en.bitcoin.it/wiki/Atomic_cross-chain_trading

[3] https://github.com/TierNolan/bips/blob/bip4x/bip-atom.mediaw...

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