Why do traders choose to trade anonymously?

Carole Comerton-forde, Kar Mei Tang, Tālis Putniņš

Research output: Contribution to journalArticlepeer-review

Abstract

This paper examines the use, determinants, and impact of anonymous orders in a market where disclosure of broker identity in the trading screen is voluntary. We find that most trading occurs nonanonymously, contrary to prior literature that suggests liquidity gravitates to anonymous markets. By strategically using anonymity when it is beneficial, traders reduce their execution costs. Traders select anonymity based on various factors including order source, order size and aggressiveness, time of day, liquidity, and expected execution costs. Finally, we report how anonymous orders affect market quality and discuss implications for market design.
Original languageEnglish
Pages (from-to)1025-1049
JournalJournal of Financial and Quantitative Analysis
Volume46
Issue number04
DOIs
Publication statusPublished - 19 Apr 2011

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