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Why Do Traders Choose to Trade Anonymously?

Published online by Cambridge University Press:  19 April 2011

Carole Comerton-Forde
College of Business and Economics, Australian National University, CBE Building 26C, Canberra, ACT 2601, Australia,
Tālis J. Putniņš
Stockholm School of Economics in Riga, Strelnieku Iela 4a, Riga, LV1010, Latvia,
Kar Mei Tang
Faculty of Economics and Business, University of Sydney, Sydney, NSW 2006, Australia,


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.

Research Articles
Copyright © Michael G. Foster School of Business, University of Washington 2011

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Why Do Traders Choose to Trade Anonymously?
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