Liquid Speed: On-Demand Fast Trading at Distributed Exchanges
Trading and Market Microstructure
2019-07-26 v1 Theoretical Economics
General Finance
Abstract
Exchanges acquire excess processing capacity to accommodate trading activity surges associated with zero-sum high-frequency trader (HFT) "duels." The idle capacity's opportunity cost is an externality of low-latency trading. We build a model of decentralized exchanges (DEX) with flexible capacity. On DEX, HFTs acquire speed in real-time from peer-to-peer networks. The price of speed surges during activity bursts, as HFTs simultaneously race to market. Relative to centralized exchanges, HFTs acquire more speed on DEX, but for shorter timespans. Low-latency "sprints" speed up price discovery without harming liquidity. Overall, speed rents decrease and fewer resources are locked-in to support zero-sum HFT trades.
Keywords
Cite
@article{arxiv.1907.10720,
title = {Liquid Speed: On-Demand Fast Trading at Distributed Exchanges},
author = {Michael Brolley and Marius Zoican},
journal= {arXiv preprint arXiv:1907.10720},
year = {2019}
}