Experiments in High-Frequency Trading: Testing the Frequent Batch Auction

An oTree-based flexible architecture for financial market experiments

“…This section describes how our architecture implements Aldrich and López Vargas (2018) and more general experiments. The experiment of Aldrich and López Vargas (2018) was implemented with software that inspired the architecture we present in this paper. One of the important differences is that their software is not based on oTree.…”

“…Although our framework can implement more general experiments, we now describe how it replicates the environment in Aldrich and López Vargas (2018). That paper compares two financial market formats, the Continuous Double Auction (CDA) and the Frequent Batch Auction (FBA), in the presence of high-frequency trading.…”

“…Each exchange server maintains an order book for its associated group during a trading period. Although market formats in Aldrich and López Vargas (2018) are only varied over multi-period experimental sessions, this is not a restriction in the oTree-based architecture, where different market formats can be deployed in a single session.…”

“…Subjects choose roles by clicking buttons located in the 'choice box' on the right. The 'spread graph' informs market makers about their current spread using Figure 2: Traders' user interface in Aldrich and López Vargas (2018). The information box (top) provides information about the market state, such as the asset value and number of different types of active traders, as well as information about the individual player, such as current bid and offer.…”

“…Every exchange stores detailed logs of the order book, which can be also be treated as experiment data and an instrument for error checking. We use the same exchange servers as Aldrich and López Vargas (2018), which were developed under a separate software project and are meant to be adapted for different experiments 9 . The exchanges, by design, are anaware of the experiment server or any other part of the system and are only responsible for (1) processing messages in OUCH protocol and (2) maintaining and matching orders.…”