1) Didn't realize when I read this it was by yummyfajitas, whose comments I always respect.
2) Do I understand correctly that the order book is public (albeit anonymized)? That surprised me -- it seems like this would lead to meta-games and jockeying for position and such, as opposed to different parties just submitting into a black box what some security is worth to them.
3) Are there any good papers/articles modeling different market set-ups? For instance my black box one above. Or one where orders are matched randomly rather than chronologically. Or one where trades happen in one batch once per day. I can't say I'm opposed to HFT, it just seems to sap a very large amount of engineering brainpower for not that much societal marginal benefit anymore. If I could snap my fingers and give up a bit of the liquidity and get all those engineers back I probably would.
4) I once worked in a sell-side equity research shop which traded stocks the old fashioned way (based on fundamentals) and had a non high-frequency trading desk, etc. That type of company is getting hurt by the lower spreads offered by HFT. But I never did quite comprehend why it made sense to pay for our product (research) with trading commissions. Seemed to cross two unrelated services, although that kind of business model seemed deeply entrenched in the market.
there are several books including a "public book" that all exchanges publish and an "internal book" that each exchange has.
in case of the "internal book", it is always ahead of the "public book", as changes to it "published" after events occur internally and this "internal book" is updated.
this is important bit, as an individual exchange "knows better/earlier" than the "public".
Regarding 2: You're correct, the main order book is public and usually anonymous. There are also non-public books called dark pools where you cannot see what other people are bidding. You are also correct in supposing that a lot of meta-games go on, but dark pools don't remove this entirely; they just change the rules. For instance you could, if it is allowed, submit a tiny orders in increasing price until it gets filled; then you know something about the price in the pool.
> For instance you could, if it is allowed, submit a tiny orders in increasing price until it gets filled.
Ha, that's clever. I suppose any system that people come up with will always have ways to game it. Reminds me of Arrow's Impossibility Theorem[1] which basically proved that there's no possible perfect voting system. Ah well.
1) Didn't realize when I read this it was by yummyfajitas, whose comments I always respect.
2) Do I understand correctly that the order book is public (albeit anonymized)? That surprised me -- it seems like this would lead to meta-games and jockeying for position and such, as opposed to different parties just submitting into a black box what some security is worth to them.
3) Are there any good papers/articles modeling different market set-ups? For instance my black box one above. Or one where orders are matched randomly rather than chronologically. Or one where trades happen in one batch once per day. I can't say I'm opposed to HFT, it just seems to sap a very large amount of engineering brainpower for not that much societal marginal benefit anymore. If I could snap my fingers and give up a bit of the liquidity and get all those engineers back I probably would.
4) I once worked in a sell-side equity research shop which traded stocks the old fashioned way (based on fundamentals) and had a non high-frequency trading desk, etc. That type of company is getting hurt by the lower spreads offered by HFT. But I never did quite comprehend why it made sense to pay for our product (research) with trading commissions. Seemed to cross two unrelated services, although that kind of business model seemed deeply entrenched in the market.