pro-rata or price-time priority ?

M

Monty Carlo

With the US markets starting to migrate to electronic platforms , one big issue that a lot of traders will have to face is whether the trading platform supports pro-rata (i.e. CBOT, LIFFE) or price-time priority (EUREX) for order entry for futures AND options.

Which is the most fair system for all concerned ?

Why ?
 
The type of matching engine is dictated by product, not exchange.

e.g. ES & FTSE futures are both time priority, but Eurodollar & Euribor ar pro-rata - they trade on Globex and Connect respectively.

I'd prefer to trade on a time stamp basis. A 10,000 clip trader would prefer pro-rata!
 
so which is fairer then ?
doesn't the 10k clip trader have to bid/offer 30-50k to get his
10k filled on pro-rata based platform ?
what happens when he gets lifted on the full amount ?

i'm presuming the pro-rata markets tend to favour the exchanges
in this instance, is that correct ?
 
Quote from Monty Carlo:

so which is fairer then ?
doesn't the 10k clip trader have to bid/offer 30-50k to get his
10k filled on pro-rata based platform ?
what happens when he gets lifted on the full amount ?

i'm presuming the pro-rata markets tend to favour the exchanges
in this instance, is that correct ?
More...

1. Fairer depends on who you are. Pro rata was designed to encourage a resonable size bid/offer, but it causes a lack in market depth.

2. Not really. The largest volume order gets sorted to the top. The 10k trader is most likely trying to get a good fill but is at risk of getting completely filled. This all depends on the type of trader and the reason for the bid/offer.

3. I don't think the exchanges care.
whatever works best to suit the needs of the participants is fine with them. 2 of the top three traded contracts based on volume are price/time (bund and US 10 yr).

I prefer price-time. The depth is better which enables you to use stops within that contract. You can use stops with pro rata, but it's extremely dangerous to use market stops. Alsowith price-time you don't lose priority in the book when the market price changes.
 
You must log in or register to reply here.
Back
Top