Slowing Down Fast Traders: Evidence from the Betfair Speed Bump

51 Pages Posted: 4 Oct 2015 Last revised: 21 Jun 2016

See all articles by Alasdair Brown

Alasdair Brown

University of East Anglia (UEA)

Fuyu Yang

University of East Anglia (UEA) - School of Economic and Social Studies

Date Written: June 21, 2016

Abstract

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

Brown, Alasdair and Yang, Fuyu, Slowing Down Fast Traders: Evidence from the Betfair Speed Bump (June 21, 2016). Available at SSRN: https://ssrn.com/abstract=2668617 or http://dx.doi.org/10.2139/ssrn.2668617

Alasdair Brown (Contact Author)

University of East Anglia (UEA) ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

Fuyu Yang

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom

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