Brett Harrison, advisor to crypto exchange FTX and past president of FTX US, recommended that crypto exchanges implement the type of intermediate order used in traditional stock markets to help institutional traders and high-volume traders.
2/ The average fixed order is guaranteed to be executed at a price no lower than the midpoint of the best offer and the best offer, and also no worse than the limit price, if one has been entered. The order itself is hidden and therefore does not appear in the order book.
— Brett Harrison (@BrettHarrison88) October 27, 2022
4/ They are supported by almost all NMS exchanges (eg IEX: https://t.co/PZLJrzRLJS). There are also more advanced parameters for pegs, such as snapping to the same side or opposite side instead of midpoint and allowing offsets.
— Brett Harrison (@BrettHarrison88) October 27, 2022
6/ The above makes the order type suitable for crypto markets. One potential concern is less transparency of the order book, as average liquidity is often hidden. Although crypto exchanges could innovate by allowing average liquidity to be displayed to data subscribers.
— Brett Harrison (@BrettHarrison88) October 27, 2022
7/ Midpoint peg orders would help institutional traders and high-volume traders provide liquidity at the top of the book while minimizing their risk due to not only the volatility but also the randomized latency that occurs with cloud-based matching machines. Why are they gone?
— Brett Harrison (@BrettHarrison88) October 27, 2022
Joe Saccuzzi, partner at brokerage Themis Trading:
We often use midpoints for our stock trading. Most of the time it is used together with a minimal amount of filler.
— Joe Saluzzi (@JoeSaluzzi) October 27, 2022
Non-display orders are complex, pricing will not be obvious, etc. But given that many crypto instruments are already tick-wide, why isn’t the much simpler underlying peg shown available everywhere?
— picotrades (@picotrades) October 27, 2022
Agreed, but most of the “complex” order types that are used in tradfi would make more sense if there was an equivalent of NBBO in the crypto market structure.
— BidOnly.eth (@cash_mgmt) October 27, 2022
The tick size in most crypto order books is much smaller in notional terms than most stock names. And the producer/receiver fee model has a greater cost asymmetry than most crypto fee tiers. Also Reg NMS gives more confidence to bid/sell pricing on one exchange.
— Scott Knudsen (@SMKnudsen) October 27, 2022
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