Would someone please devise a way to run a stock market as a repeated clocked auction, so that prices change, say, once every 5 minutes and high frequency trading doesn't work.
Sure. The cost is that trades are slower, and people selling a large block of shares will have to settle with many others. Oh, and also trading will stop when there is excessive market volatility.
Still interested? Here is the mechanism. There is a priority queue for open buys and one for open sells. The sizes of the buys and sells is 1 share. Both are ordered by time the order was received, with oldest first. And the market has a price.
Whenever both queues have entries that can match at that price, they do. At the end of every X time, if one queue is empty and the other is not, the price moves 1 cent.
If a large order is received, trading effectively stops and it can only move the price slowly. Because the price only moves slowly, there are no sudden price shifts for HFT to take advantage of.
Interestingly even if this market has low volume, it can still take large orders successfully. Because even though HFT traders can't make money by playing this market, they can make money off of arbitrage between this market and others. Therefore until a large order finishes settling on this market it serves as a ceiling or floor of what gets traded on other markets. Which means that the HFT traders do the hard work of trading this on other markets.
But for anyone who wishes to trade with each other on this market, HFT can't make money from them.
Sure. The cost is that trades are slower, and people selling a large block of shares will have to settle with many others. Oh, and also trading will stop when there is excessive market volatility.
Still interested? Here is the mechanism. There is a priority queue for open buys and one for open sells. The sizes of the buys and sells is 1 share. Both are ordered by time the order was received, with oldest first. And the market has a price.
Whenever both queues have entries that can match at that price, they do. At the end of every X time, if one queue is empty and the other is not, the price moves 1 cent.
If a large order is received, trading effectively stops and it can only move the price slowly. Because the price only moves slowly, there are no sudden price shifts for HFT to take advantage of.
Interestingly even if this market has low volume, it can still take large orders successfully. Because even though HFT traders can't make money by playing this market, they can make money off of arbitrage between this market and others. Therefore until a large order finishes settling on this market it serves as a ceiling or floor of what gets traded on other markets. Which means that the HFT traders do the hard work of trading this on other markets.
But for anyone who wishes to trade with each other on this market, HFT can't make money from them.