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 ?
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.