The Trading Game - Development Log #346

[lowstrife]

To make penny wars pointless, trade events should be closer to production events or there should be more buyers or sellers in any given market. Any minimum tick rule changes is simply putting a bandaid on the issue.

I disagree. Tick sizes are healthy to the liquidity of the market, regardless of how many participants there are in it. There is a reason why the S&P500 or various other stocks trade at certain tick sizes. ES! futures trade at a 25 cent tick size for the S&P E-mini’s. This is to discourage this exact penny frontrunning and promote people piling up liquidity.

The issue here, and Molp has the correct idea IMO, is that frontrunning someone’s BSE order at 1400\ea with yours at 1399.99 is just annoying. You can’t sacrificing any meaningful economic value simply to be first in line. Tick size adjustments mean you must sacrifice meaningful economic value (1390 for example) to be able to be first. Otherwise you’re just having wars with people to be “first” which is not fun.

Trading or listing fees also create these incentives, but they create a deadweight loss (taxes that get black-hole’d), along with requiring sellers to post currency collateral which is not a good idea. If you use tick sizes to control the markets, then other players capture that “loss” by getting better prices for items they’re exchanging.

Molp suggested 4 sig-fig tick sizes, I think that’s too fine. I think it should be 3 sig figs. One of the healthiest markets, SF, operates usually around this 3 sigfig mark. And we see a very healthy distribution of liquidity across a broad range of prices. And even then there are still jumps and gaps.

@ThosReturns

Yeah in general I’m not a fan of arbitrary rules - why would the tick size be 0.1%, or 0.2%, or any other number? Using the smallest currency fraction is good enough for me, “the market” will figure it out.

Your perception is wrong, it explicitly does have an impact to available liquidity and the health of the market. There is a specific reason why the equity, bond and other markets have specific tick sizes. This is different than a stock split which is used to keep the overall price of a share at some nominal value (typically $10-1000).

The really quick summary is this. If there are very small tick sizes, everyone who is posting offers is cluttered directly around each other. They’re all at some tiny variation of each other, rushing to front-run the next. There is very little liquidity deeper into the book because why would you post it behind everyone? You’re the last to get filled and thus, the time-cost of money and opportunity cost and all that shit.

With enforced tick-sizes, you force-spread out the offers across a broader range of prices. There is now t he same amount of orders, but they are at a greater distribution of prices and it’s not a pennyrace to see who is first. This also has other incentives to people taking liquidity and how deep they will place an order and the value these deeper orders form the spread present.

@Domicius

I think the main fix that is needed is that when I place a sell order that matches another one, then both out items are sold in proportion (or 1 for 1) when a buyer accepts the price. This would PU tan end to the penny wars which are sometimes needed just because large sell orders clog up the system.

It’s just a form of a target clearing mechanism that would prevent players gazumping each other, and you can still undercut to clear your stock.

This is actually the worst thing you could possibly do to the market.

In theory yes, everyone is equal.

But in practice, this will mean the bid\ask spread will never collapse on markets. Nobody will have any incentive to close it. They just place their order with everyone else to capture the maximum possible price.

It will destroy the health of the markets and orderbooks.

[Tibster]

@lowstrife

Molp suggested 4 sig-fig tick sizes, I think that’s too fine. I think it should be 3 sig figs. One of the healthiest markets, SF, operates usually around this 3 sigfig mark. And we see a very healthy distribution of liquidity across a broad range of prices. And even then there are still jumps and gaps.

I agree that 1 cent on a 1400 item is way too small. I didn’t argue in favor of current tick sizes, but for the reasons why this happens. Even with a 3 sigfig tick size, it would still happen because the spread can be as large as 20% for some items. There’s also a problem with when prices are near a crossover point. At 9.99 you can frontrun to 9.98, but at 10.1 you need to drop to 10. The ideal system is where tick sizes are a constant percentage increase over the previous price, but that leads to some funky looking prices.

I currently produce RAT and H2O and I do not engage in penny wars, yet my stuff sells regularly fast even though people do place asks pennies under mine. This is because there’s a constant buying action on these markets. If I was to engage in a penny war with someone else, what would happen is one of us would catch the first buy, then the other would get the next a few hours later at most. After that we’re both out of the market for days until our ships bring in more to sell. We gained nothing.

That’s what I mean with having more trade events. With fixed tick sizes, you may be losing 0.1% instead of 0.001% of your revenue to be able to reinvest it 3 days earlier. It won’t change anything because ROI is very high in this game and reinvesting 3 days sooner could yield a few percentage of gain.

There’s no simple fix because the game’s core feature is to not require active daily participation and NPC non-profit market makers is not something the devs want to introduce because it would break the 100% player run economy part. Yes, having a 3 sigfig tick size will help a bit, but spreads are still going to be wide enough to allow significant price wars.

[ThosReturns]

@lowstrife

With enforced tick-sizes, you force-spread out the offers across a broader range of prices. There is now t he same amount of orders, but they are at a greater distribution of prices

Mostly I see where you’re going, but I think this assertion is false; I think if you have a higher spread of prices, you’re going to have fewer orders on the market exactly because of what you said - prices will change “faster” so you’ll end up at a price at which supply won’t be offered faster than without the higher tick size.

Either that or you’ll have everyone stuck posting their orders literally piling up at the same prices, because they aren’t willing to give up 10 or 100 currency per unit to be first. What it does is make higher “walls” for supply and demand to cross.

I just don’t see it increasing the volumes of goods available on the markets; I think it will just make the price numbers look more quantized on the CXPC.

I’d be interesting in seeing some actual metric of liquidity, and then tracking what that looks like before and after such a change, correcting for confounding factors like population changes, etc. My hypothesis is that you wouldn’t be able to notice any meaningful difference from the noise. Seems like an experiment may be in order!

[lowstrife]

@ThosReturns

Either that or you’ll have everyone stuck posting their orders literally piling up at the same prices, because they aren’t willing to give up 10 or 100 currency per unit to be first. What it does is make higher “walls” for supply and demand to cross.

That is actually not what happens when you raise the tick size. It’s the opposite. Look at the SF markets, especially in moria. Very even distribution with liquidity among many price levels.

Compared to BSE where there is a bunch of liquidity right at the spread, but only minimal stuff futher out (mostly a lot of stink orders)

@ThosReturns

I just don’t see it increasing the volumes of goods available on the markets; I think it will just make the price numbers look more quantized on the CXPC.

Not really - it doesn’t magically make more bids and offers show up and more items to show up. But it distributes the pricing in a more fair and orderly manner without the toxicity of pennyracing all day long.

[ThosReturns]

@lowstrife

distributes the pricing in a more fair and orderly manner without the toxicity of pennyracing all day long.

I guess my question is - how is “minimum tick racing” (which is what will happen) any different than “pennyracing”?

I also question the assertion of “fair”; the big etiquette breach in OB to me comes in when someone puts an order for say 10 units, and then someone comes in “one tick” closer to the spread for a volume of 10000. The issue isn’t price-undercutting, it’s blocking the small sellers (or buyers) with massive volume. Changing tick size can’t solve that problem, and it often makes it worse - the small guys have to take a higher cost to get past the big-quantity orders than they would at 0.01.

[lowstrife]

@ThosReturns

I guess my question is - how is “minimum tick racing” (which is what will happen) any different than “pennyracing”?

The $$$ per movement is larger? The action is the same - but there will be less of it as people will be willing to have more expensive orders and “wait”.

After the first couple of months of playing, you’re planning weeks or months in the future. So you know you’ll eventually need something, so you may as well place a bid to get a slightly better price on it now since you don’t have something better to spend the money on. Or you regularly produce something and you are willing to keep it on your books for a bit longer to get a slightly higher margin, and thus contribute liquidity to the universe. Someone’s got to put up the first offer.

@ThosReturns

I also question the assertion of “fair”; the big etiquette breach in OB to me comes in when someone puts an order for say 10 units, and then someone comes in “one tick” closer to the spread for a volume of 10000. The issue isn’t price-undercutting, it’s blocking the small sellers (or buyers) with massive volume. Changing tick size can’t solve that problem, and it often makes it worse - the small guys have to take a higher cost to get past the big-quantity orders than they would at 0.01.

Yeah that’s a fair point - getting frontrun by big orders sucks. It will be worse with larger ticks, you’re right. IMO the tradeoff is worth it - but I am one of those “bigger players”, and bigger players who do that will continue to do that anytime they feel like they want to actually be first in line.

[Tibster]

@ThosReturns

I also question the assertion of “fair”; the big etiquette breach in OB to me comes in when someone puts an order for say 10 units, and then someone comes in “one tick” closer to the spread for a volume of 10000. The issue isn’t price-undercutting, it’s blocking the small sellers (or buyers) with massive volume. Changing tick size can’t solve that problem, and it often makes it worse - the small guys have to take a higher cost to get past the big-quantity orders than they would at 0.01.

Either the 10K order is way too large for the market and selling that 10 was a big gamble to begin with or that 10K is appropriate and it will get sold relatively fast which will get the 10 sold in a timely manner. I don’t see any problem with the system here, but rather with business decisions of both players.

If the market is too small, that 10K player is producing stuff that was never going to sell and they’re killing both player’s profits. That’s a situation that would never happen because nobody in their right minds would setup a production chain to flood an illiquid market.

[lowstrife]

@Tibster

That’s a situation that would never happen because nobody in their right minds would setup a production chain to flood an illiquid market.

Induced demand baby

I built 14 GF’s to make nothing but GL\RG months ago and boy is that paying dividends now.

[irTungsten]

Increasing the tick size is good for the same reason you have a minimal bet and raise in poker. You reach the equilibrium point quicker and requires a bit of a cost to jump ahead in the queue. Living more up to the first comes first served.

It just sucks if you’ve put up a 10k item which doesn’t sell often and after a week someone comes in and puts up his for 9 999.99

[jackinabox]

Reading all this, I continue to think the tick size reform is a positive one. One thing I think is missed in some of the comments is that players don’t need to list their goods below the current ask. If you don’t want to go down a tick, you can list at the same price, or if you think the tick wars are getting below the true market price at the current demand level, you can list above. I recently listed BHP a fair bit above the current ask because I believed demand for BHP with ship upgrades would ultimately get my materials purchased at the price I wanted and I didn’t want a race for quick profits to cost me profit in the end.

Anything that gets us to a clearer market price, as tick sizes would do is beneficial to the health of the market and game. Tick prices also clean up the order book and make the choice to lower price a bit more thoughtful.

[PaidLeber]

Right now, there are currently not enough players to absorb a dynamic tick size even in fuels. Implementing an entry size/price will significantly lower the liquidity of the markets and create a barrier for entry for new players in the first 2 months where every penny counts.

A better solution would be to keep the 5 per day deletion fees and just decrease the tick size from 1/100 to 1/1000 (.01 to .001) for the most liquid markets (SF/FF). Fighting for 1/10 of a penny is fruitless and those that engage in it will hit the deletion fees faster and eventually give up. It will still allow the newer players however to underbid the doomstack orders 20k+ and vice versa without much loss and get filled.

Free markets are efficient, not fair.

At least from what I’ve seen in SF/FF even if you’re underbid by penny traders, there is enough liquidity where you eventually get filled within 24 hrs.

[Ficks_Dinkum]

“Everyone is asking for the tick size to be increased. So let’s do the opposite and then tell them to stop being such babies. That’ll teach them to respect the devs!”

Baller move.

[lowstrife]

The doomstack orders do whatever they want to do.

Players this big are not affected by the deletion fees. When you have 10, 20, 30 orders you’re not modifying them 5 times a day.

Also, as per my examples, tick sizes would not meaningfully change in the fuel markets. They are very close to the 3 sigfig trading range I would suggest.

The biggest changes we would see are in the bfab markets.

[FireFreak]

I’d like to add that, if tick sizes are introduced, the deletion fees probably should be removed.

I see why they exist now, even though I don’t like them, but with tick sizes that reason doesn’t really exist anymore.

[Kenionatus]

One thing I’d like to point out is that the PrUn differs in one big way from IRL markets: orders cannot be placed algorithmically. Penny wars can unfold much faster if computers are doing the bidding vs humans. The limiting factor for how fast the prices converge in a game penny war are either how much time the involved parties are willing to spend on it, the fees imposed upon placing a new order or a hard limit on the number of orders that can be created. Those are generally quite high hurdles for commodities which have a high spread, resulting in very slow price convergence.

[ThosReturns]

I am with Lowstrife. I think the slow price convergence is due mainly to low volumes in general; it has very little to do with minimum price change increments.

If you want to increase volume on the CX, then I maintain PrUn is not the game for you; the only way to increase CX volume is to eliminate LMs and that would just be a different game entirely.

[lowstrife]

Yeah without HFT, we’re never going to get 1bp spreads and infinite amounts of liquidity like we see in other markets.

The opinions I express are just opinions I think which would improve the health of the markets and make the most bester changes for the betterment of the mostest number of people.

Some individuals may not see beneficial changes for themselves, but as a whole, the health of the markets would improve for everyone. We’d only really see these changes impact the T1 markets. For the higher end stuff, most players already ignore the penny bid system anyway. People meaningfully operate on the 3 or 2 sigfig rule. Because it’s not about being “first” in line. It’s about offering a meaningfully cheaper price so that someone actually buys it at the cheaper price, when before, it may have been too expensive.

[Ficks_Dinkum]

The reason people don’t like penny wars is that it’s demoralising if you’re a beginner player who logs in once a day, and you finally get your BSE to the CX and list it for sale, and then the next day when you log in you find someone changed their listing to be a penny less than yours, so you haven’t sold anything. It favours players who have more time to monitor the markets all day and adjust their bids.

The 5 order per 24hr limit helps, but a minimum tick size would also help, because the underbidding players would be forced to lose more money when they did it, so then underbidding wouldn’t be such an easy decision for them. That’s why players are asking for minimum tick sizes, it has nothing to do with liquidity or price convergence, even if those things would happen as a result.

[lowstrife]

You’re precisely right with how you demonstrate the problem.

You will see actual liquidity develop in the orderbook. You will see larger orders be more lazy, hanging out deeper into the book happy to wait. And you will see smaller orders torward the front of the orderbook. Now and then you may see a larger player move a large block and adjust the price.

But you’ll have compressed spreads. And you won’t have to actually be first in line to have any hope of getting filled. You can throw an order “lolidksomewhere” and it should have a better chance of not getting bypassed and forgotten about.

The more players and the more trading activity there are in the game the better this works. The game is… still small now. So the markets are pretty baren still.

[Mortality]

Won’t increasing the tick size mean more goods going through MMs instead of to real players? Tick size won’t stop me listing and re-listing at any price. So far I haven’t had to use an MM ever, but I can see it happening for sure if the tick sizes increase. To do stuff like HQ and ship upgrades, or build your corp headquarters you need revenue. If I sit around waiting for my goods to hopefully sell sometime in the future those things will take too long, and the game will become boring. I see penny-wars as players being pro-active so their revenues don’t stagnate. As far as demoralizing new players is concerned, that slow early growth stage we all had to go through, use it to explore and learn how the game works.