Latency and Liquidity Risk

Latency (i.e. time delay) in electronic markets affects the efficacy of liquidity taking strategies. During liquidity, takers process information and send marketable limit orders (MLOs) to exchange, order book (LOB) might undergo updates, so there is no guarantee that MLOs are filled. We develop a latency-optimal trading strategy improves marksmanship takers. The interaction between LOB modeled as marked point process. Each MLO specifies price can receive worse prices quantities than those taker targets if updates against interest trader. In our model, balances tradeoff costs missing trades walking book. particular, we show how build cost-neutral strategies, on average, trade improvements for fewer misses. employ techniques variational analysis obtain each agent sends. an characterized solution class forward–backward stochastic differential equations (FBSDEs) driven by random measures. prove existence uniqueness FBSDE numerically solve it illustrate performance