Fools Rush In: Competitive Effects of Reaction Time in Automated Trading

Henry Hanifan, John Cartlidge

2020

Abstract

We explore the competitive effects of reaction time of automated trading strategies in simulated financial markets containing a single exchange with public limit order book and continuous double auction matching. A large body of research conducted over several decades has been devoted to trading agent design and simulation, but the majority of this work focuses on pricing strategy and does not consider the time taken for these strategies to compute. In real-world financial markets, speed is known to heavily influence the design of automated trading algorithms, with the generally accepted wisdom that faster is better. Here, we introduce increasingly realistic models of trading speed and profile the computation times of a suite of eminent trading algorithms from the literature. Results demonstrate that: (a) trading performance is impacted by speed, but faster is not always better; (b) the Adaptive-Aggressive (AA) algorithm, until recently considered the most dominant trading strategy in the literature, is outperformed by the simplistic Shaver (SHVR) strategy—shave one tick off the current best bid or ask—when relative computation times are accurately simulated.

Paper Citation

in Harvard Style

Hanifan H. and Cartlidge J. (2020). Fools Rush In: Competitive Effects of Reaction Time in Automated Trading. In Proceedings of the 12th International Conference on Agents and Artificial Intelligence - Volume 1: ICAART, ISBN 978-989-758-395-7, pages 82-93. DOI: 10.5220/0008973700820093

in Bibtex Style

@conference{icaart20,
author={Henry Hanifan and John Cartlidge},
title={Fools Rush In: Competitive Effects of Reaction Time in Automated Trading},
booktitle={Proceedings of the 12th International Conference on Agents and Artificial Intelligence - Volume 1: ICAART,},
year={2020},
pages={82-93},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0008973700820093},
isbn={978-989-758-395-7},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 12th International Conference on Agents and Artificial Intelligence - Volume 1: ICAART,
TI - Fools Rush In: Competitive Effects of Reaction Time in Automated Trading
SN - 978-989-758-395-7
AU - Hanifan H.
AU - Cartlidge J.
PY - 2020
SP - 82
EP - 93
DO - 10.5220/0008973700820093