Expiration dates on limit orders achieve something in this direction, but it’s not quite the same thing that batched trading would achieve.
Consider the case where you place an order based on your current forecast, and then some event happens while you’re not watching the market:
Under the current system, supposing you set an expiration time of 1 day: If the event happens within the day, you will still get scooped. If it happens after 1 day, then you can’t get scooped but you also lose the opportunity to make the trade at your endorsed price. For thinly traded markets it may well take more than 1 day for sufficient liquidity to show up, so you have to make this tradeoff between waiting for liquidity and risking getting caught with your trousers down.
Under a batched auction system, with a batch interval of 1 day: If the event happens within the first day, as long as you notice it before the auction executes everything is fine. If it happens after the first day, it’s still fine as long as you check the market on that day, so you might set expiration dates on your limit orders according to the rule “as long as I can commit to checking on this once per day”.
If you do fail to react before the auction executes: You are still likely to have your order taken up at a more favourable price, because the auction executes at a single price. Looking at the first image in the post, suppose you are the buyer with a limit order at $14. In continuous trading, your order would have been taken at around $14, as soon as the marginal traders showed up to act on the new info. But under batched trading, more sellers would show up before the auction takes place, pushing the price lower. So you are still safer leaving your order sitting there in the market, as long as you trust that the bulk of orders at the time the auction executes are from “live” traders (who are actively reacting to information)[1].
Now I think about this this could actually push in the direction of lower accuracy, because people can afford to be more blasé about leaving low info orders in the market
Expiration dates on limit orders achieve something in this direction, but it’s not quite the same thing that batched trading would achieve.
Consider the case where you place an order based on your current forecast, and then some event happens while you’re not watching the market:
Under the current system, supposing you set an expiration time of 1 day: If the event happens within the day, you will still get scooped. If it happens after 1 day, then you can’t get scooped but you also lose the opportunity to make the trade at your endorsed price. For thinly traded markets it may well take more than 1 day for sufficient liquidity to show up, so you have to make this tradeoff between waiting for liquidity and risking getting caught with your trousers down.
Under a batched auction system, with a batch interval of 1 day: If the event happens within the first day, as long as you notice it before the auction executes everything is fine. If it happens after the first day, it’s still fine as long as you check the market on that day, so you might set expiration dates on your limit orders according to the rule “as long as I can commit to checking on this once per day”.
If you do fail to react before the auction executes: You are still likely to have your order taken up at a more favourable price, because the auction executes at a single price. Looking at the first image in the post, suppose you are the buyer with a limit order at $14. In continuous trading, your order would have been taken at around $14, as soon as the marginal traders showed up to act on the new info. But under batched trading, more sellers would show up before the auction takes place, pushing the price lower. So you are still safer leaving your order sitting there in the market, as long as you trust that the bulk of orders at the time the auction executes are from “live” traders (who are actively reacting to information)[1].
Now I think about this this could actually push in the direction of lower accuracy, because people can afford to be more blasé about leaving low info orders in the market