Slowing Down Fast Traders: Evidence from the Betfair Speed Bump
51 Pages Posted: 4 Oct 2015 Last revised: 21 Jun 2016
Date Written: June 21, 2016
Recent evidence suggests that the fastest algorithmic traders in financial markets profit at the expense of slower traders. One solution gaining traction is a 'speed-bump', which introduces a delay between the time in which an order is submitted, and when it is processed. We analyse the speed bump's effectiveness on Betfair, a betting exchange, where this design has been utilised for more than a decade. We find evidence that the speed bump protected slower traders, but there was no clear effect on market quality. Furthermore, fast traders have begun to develop successful strategies to circumvent the speed bump.
Keywords: algorithmic trading, high-frequency trading, speed-bump, market liquidity
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation