In current electronic markets an executing order takes liquidity that was entered before it arrived.
This use of electronics was a major advance in trading. The breadth of its appeal lay both in the feel and actuality of its transparency. Over time traders have made the methodology more complex (more order types) and less transparent because, though they wanted the efficiency of electronics, they wanted to minimize the disadvantage of having to “go first”. These two attributes, the overall efficiency of electronics coupled with the increased risk of having to go first, though offset by a rebate, have shaped the current market to what it is.
But what if a new technology offered the efficiency and speed of electronics without this disadvantage? That is, what if the executing order had a choice? Take immediate liquidity, or take “best” liquidity, soliciting from an electronic crowd at electronic speed.
This means the liquidity provider would also have a choice to post liquidity in advance, as in Exchange’s, and/or to respond to solicitations for “best” liquidity. In “best” mode, the liquidity provider would entirely avoid bursts of unexpected volatility and could make markets (offer liquidity) to individual orders.