I've been wondering if an exchange that prevented HFT would prosper in the current climate. I'm sure that plenty of companies aren't a fan of their market cap being at the whim of an algorithm and the large number of swings it would undergo.
Wouldn't they prefer an exchange that offered liquidity in minutes or even hours, opposed to fractions of a second?
They'll still be traded over the counter elsewhere at high frequency, so I think the end result would be widening spreads on the new exchange to cover the variation over a time tick (whatever length that is), and no one (even long term investors) would actually use the new exchange.
What is your definition of H though? If someone decides to offer a large block of shares for sale, and they break it into 100 lots, are they a high-frequency trader under this definition? What if it's 10,000 lots? 10,000,000?
This is a data structure problem at its core - the fact that someone entered one billion BUY orders at $15.51 should not prevent me from seeing that there's an outstanding order at $15.52. The stock market employs the queue only for legacy reasons.
"This is a data structure problem at its core - the fact that someone entered one billion BUY orders at $15.51 should not prevent me from seeing that there's an outstanding order at $15.52. The stock market employs the queue only for legacy reasons."
(1) I'm not sure I understand what you're saying about price information. You seem to be saying that level 2 quotes don't exist. I assure you that for the major exchanges, level 2 quotes do exist, but they're more expensive than what most discout brokerages/Yahoo/Google give you.
(2) I'm not sure what you mean about queuing at price levels being a legacy artifact. There needs to be some objective rule for deciding who trades with whom when there are multiple participants at a given price level. In most markets, it's first-come-first-serve (a queue). I read that MS POOL was going to try prioritizing based on size, but I haven't heard anything since. So, if it's not first-come-first-serve, and there are two offers at $5.43 and a trader comes in and lifts one of the offers (not enough size to lift both), which of the two offers should get lifted?
Betfair offers exchange sports betting. There, you always have 5 seconds to cancel an order even after it's match, and they suspend trading near a major event, like a goal in a football match. This seems to work quite well.
So cancellations made immediately before e.g. a goal are rolled back? Otherwise that sounds exploitable, as the probability of a goal increases dramatically before the goal takes place.
Wouldn't they prefer an exchange that offered liquidity in minutes or even hours, opposed to fractions of a second?