Trading and black market Flashcards
Whats is a limit order and a market order
Limit order: specifies a quantity and a price to buy/sell at a price that we manually put on
Market order: specifies a quantity to buy/sell
If there are two orders with same direction (buy/sell) and same price who has priority?
Priority is given to the earliest order.
Thus, priority goes as follow: Highest price and earliest bider
What is high frequency trading
It refers to the speed at wich traders can make transactions.
wich is very fast nowadays
Why does latency between markets matter?
Because stock is traded anywhere and the less latency you have, the better are you chances of buying/selling a stock at your prefered price.
How important is it for an investor to invest in a fast internet
Super important, makes a world of difference in the profits.
What is arbitrage trading
Trading that exploits the tiniest difference in price between identical or similar assets in two or more markets
Very important: arbitrage is not due to speed
What is the NBBO
To slow down markets, the National best bid offer was instaured.
Each exchange must check if there’s no better bid/ask before executing any order. If there is one, order is re-routed
The NBBO makes the orders arrive a bit later so it helps an investor to react quicker
What is frequent batch auctions and how does it reduce snipping
- It devides trading day into intervals of equal length batch interval
- has a uniform price
1st way: Value of speed advantage is reduced.
* Sending order at the beginning or at the end of the batch interval remains the same.
*Speed only valuable at the end of the batch
2nd way: Competition is good for snipees
*If one markets jumps everybody anticipates a jump in another similar one
*Investor then “snipe” at correct price, not the stale one
What is a double auction
Quantities and price
Where do we put orders that do not cross the spread?
Limit order book
What is the difference between a liquidity taker and provider
taker: her order crosses the spread
Provider: her order is in the limit order book
What is the problem with the online systems appointment using first come first served rule
Scalping
What are the systems and the solutions to scalping
Proposition 1: Immediate system
- if scalpers gets on the system before seekers they are fucked
- seekers books what remains
- Scalper can cancel slots and re-book them once they appear
- Equilibrium not really there since scalpers enters the market at any price. so seekers buys from scalpers
Proposition 2: Batch system
- Scalper and aptmt seekers submit applications collected over time.
- Scalper can submit many applications
- Lottery determines who gets the appointment slots
- cancellations are possible but don’t provide any advantage to the scalper
- Equilibrium when the scalper does not enter the market, every seeker applies directly
