Volume Discovery: Leveraging Liquidity in the Depth of an Order Driven Market

Electronic Markets - The International Journal, Vol. 16, No. 2, pp. 101-111

Posted: 12 Jun 2008

See all articles by Peter Gomber

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration

Miroslav Budimir

University of Giessen

Uwe Schweickert

Deutsche Börse AG

Multiple version iconThere are 2 versions of this paper

Abstract

Electronic order book trading has evolved as best-of-breed for trading small and mid sized orders. Yet, this mechanism does not properly address the needs of large sized orders which tend to execute off order book in over-the-counter markets. Order book trading provides for public price discovery but not for quantity discovery. Off book executions generally fragments the order flow which again adversely impacts price discovery. We propose a market model innovation to close this gap: "Volume Discovery" introduces the new order type "volume order" to integrate large sized orders into the book. Volume order builds on the concept of iceberg order that is enhanced by two parameters "hidden limit" and "minimum volume" to continuously search order book depth for matching quantity. For large orders, volume discovery leverages already existent liquidity to benefit block trading by increased execution likelihood and reduced opportunity costs. For all orders, volume discovery promotes the integration of OTC markets and order book trading in order to improve liquidity while protecting price/time priority.

Suggested Citation

Gomber, Peter and Budimir, Miroslav and Schweickert, Uwe, Volume Discovery: Leveraging Liquidity in the Depth of an Order Driven Market. Electronic Markets - The International Journal, Vol. 16, No. 2, pp. 101-111. Available at SSRN: https://ssrn.com/abstract=1144513

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=478

Miroslav Budimir

University of Giessen ( email )

Betriebswirtschaftslehre VII
Giessen, WY 35394
Germany

Uwe Schweickert (Contact Author)

Deutsche Börse AG ( email )

Neue Börsenstr. 1
60485 Frankfurt/Main, 60485
Germany

Register to save articles to
your library

Register

Paper statistics

Abstract Views
822
PlumX Metrics