Is this only effective at small scale? Many of the biggest hedge funds in the world that do high frequency make money by effectively front-running the book. If you are executing these trades across exchanges I don't see how you don't get front-run by HF firms.
This is the same problem eth et al are dealing with in crypto swaps due to Miner Extracted Value (reordering the tx in the block to favor miners extracting value by front running trades).
The funny thing about the emergence of HFT is that if you truly only have a hundred or so shares to buy/sell it's quite cheap and easy to do that now. Atomicity and substitutability isn't as important if there's plenty of liquidity relative to the size you're trading.
The harder problem that large traders face is executing blocks and portfolio trades. How do you figure out what your total transaction cost (market impact / cost of liquidity) will be if you're buying 100x the displayed volume? Being able to express where you are flexible (e.g. individual security prices) and aren't flexible (aggregate price, atomicity) helps lock in the uncertainty pre-trade.
So we're actually mostly going after the large scale stuff, more than the small scale.
Comments
Is this only effective at small scale? Many of the biggest hedge funds in the world that do high frequency make money by effectively front-running the book. If you are executing these trades across exchanges I don't see how you don't get front-run by HF firms.
This is the same problem eth et al are dealing with in crypto swaps due to Miner Extracted Value (reordering the tx in the block to favor miners extracting value by front running trades).
The funny thing about the emergence of HFT is that if you truly only have a hundred or so shares to buy/sell it's quite cheap and easy to do that now. Atomicity and substitutability isn't as important if there's plenty of liquidity relative to the size you're trading.
The harder problem that large traders face is executing blocks and portfolio trades. How do you figure out what your total transaction cost (market impact / cost of liquidity) will be if you're buying 100x the displayed volume? Being able to express where you are flexible (e.g. individual security prices) and aren't flexible (aggregate price, atomicity) helps lock in the uncertainty pre-trade.
So we're actually mostly going after the large scale stuff, more than the small scale.