[BlowFish]

	Quote:	darthtrader
	I've been finding some pretty interesting stuff in the academic research paper basement...If anyone else finds research papers along the lines that would fit in the trading style of most people here please post in this thread(ie. not real interested in exotic derivative type research). Some this stuff is quite math heavy and I've only printed out a few to actually read over but probly worth a look. Forecasting in Continuous Double Auction http://papers.ssrn.com/sol3/papers.c...ract_id=924760 Does The Option to Cancel an Order in a Double Auction Market Matter? http://papers.ssrn.com/sol3/papers.c...ract_id=292152 Probabilistic Properties of the Continuous Double Auction http://papers.ssrn.com/sol3/papers.c...4PaperDownload

First paper looked difficult I quickly abandoned that. Third one appears to have gone.

The second one was a little more interesting however it seems pretty obvious that if it is a FIFO order matching system people will exploit that by placing limit orders at certain levels and then cancelling if they subsequently do not wish to trade at that level. The other thing that does not appear to be discussed is the effect of tick size. Too small a tick size deters people from offering liquidity 'early' (in the form of limit orders) as it costs a relatively smaller amount to join late. So the answer seems obviously yes but less so in markets with smaller tick size. e.g. If you look at say YM compared to ES the difference in the order book is greater than would be suggested by the different total contracts traded. YM is thinner than you would expect as it is cheap to better the inside bid/ask. Another side effect of this is increased volatility.

If this sort of stuff interests you a useful and practical book that deals with the effect different exchange regulations have on how the participants operate is Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris. A truly great book that offers a whole lot more solid trading information.

Cheers.