Articulating True Willingness to Trade

Abstract

An important issue for any financial marketplace is to allow and enable users to articulate their true willingness to trade. Traditional electronic marketplaces force users to articulate willingness to trade in monetary terms on single orders. This article provides examples of how this forces users to continuously update orders and quotes even though their actual willingness to trade has not changed. This is due to the fact that users are not provided with adequate tools to articulate their true willingness to trade. This article suggests two remedies: allowing non-monetary price dimensions, such as volatility for options, and allowing users to price bundles of trades. Finally, the potential consequences of these suggestions are discussed.

TOPICS: Exchanges/markets/clearinghouses, options