TR1 Genie Bottles — Order-driven Markets

One good, the genie bottle, trades in a single order book for fifty minutes. Every trader values a bottle differently, and the value drifts.

Objective

Trade bottles for cash so that holdings, at your own utility, plus cash are worth as much as possible. Assessed on private value.

What it shows

• A price forming from nothing but what each trader would pay: no news, no true value.
• An order book filling with limit orders, and market orders taking them.
• Why the price settles between the types' utilities, and what moves it when those utilities drift.

Watch out for

• Buying above your own utility loses value however cheap the bottle looks.
• A limit order left standing while your utility moves becomes a bad trade.
• Orders are capped at 50 bottles and a long position at 200, so a large change of mind takes several orders.

Who takes part

• Trader types 1 to 5 — the five types hold the same kind of bottle and start with 20 to 40 of them and no cash.
• Each type sees its own bottle utility: about 6.00, 5.50, 5.00, 4.50 and 4.00 at the open. The utility moves in a random walk through the session.
• Type 1 values a bottle most and type 5 least, so buyers and sellers sort themselves by type.

Class size

Twelve to forty students, split evenly over the five types. There are no computer traders, so the book depends on the class, and each type needs a few students to trade with its neighbours.