Both are used in many other sectors. If you have "industrial level" needs you usually have to pay extra either for the service or for additional infrastructure needed to provide you that service, or you simply get everything throttled to sustainable level (think water, electricity, etc). Most traders would not see any difference and the ones that would will have to think twice before DoSing.
It's actually quite common for exchanges to offer discounts/rebates to firms that trade more, because these firms are essentially providing a service to the exchange (market making, and generating turnover). Much like how other industries offer discounts for buying in bulk.
>The other option is to rate limit the biggest offenders when the system's performance limit is reached.
I don't know why people always suggest solutions like this when it comes to exchanges. If it was an e-commerce service and somebody suggested "let's rate limit customers to reduce load", it's be shot down as a lazy solution (and a great way to lose customers). If a platform isn't good enough to support the load its customers place on it, then it needs to be improved. If AWS goes down during the world's biggest shopping day, we don't blame the customers, we blame Amazon.
I reworded a bit to give a better idea of what I meant. In general there are bulk discounts but there's always some form of "QoS". Either you get throttled above a ceiling, or you pay through the nose to have that ceiling higher for yourself and have everyone else throttled.
All tiered systems work like this. The fixed price goes up and gives you access to better service, higher limits, lower price per usage, etc. As long as you don't have virtually unlimited capacity you can't treat your system as if you do.
Mobile operators have to do the same. They charge a base contract price that sets the tier, then charge per usage within that tier, give different ceilings, QoS priorities, and throttling rates. And no matter how big you are as a customer at some point you either pay a surcharge or get throttled so the system stays up and other customers are also served. (source: I worked both for a large telco, and for a customer that payed ~3million E per month to get the consumption costs for min/MB down to almost 0).
> I don't know why people always suggest solutions like this when it comes to exchanges.
By any chance do the suggestions always come after the exchange was down due to high transaction volumes? Sure, they could implement unlimited capacity. But since this is a tad unrealistic and actually crashing the system is worse than limiting to keep it just below crashing, perhaps the suggestion makes sense.
There aren't many sectors that I can think of which give you "unlimited usage no matter what". There's "rate limiting" even in hospitals, where lives are at stake.
I don't see a problem with rate limiting in general, if it's applied fairly. Good design should already entail that (it shouldn't be possible for customers to "crash" an exchange any more than it's possible for them to crash google.com). And many exchanges in fact have something like you described (customers can pay to buy more transactions-per-second capacity). But I don't think referring to customers as abusers or applying punitive fines is the right approach; if the exchange API let the customers crash it, that's the exchange's problem, and the customers shouldn't be blamed for taking advantage of whatever rate limit the exchange gave them (even if it gave them too much for its system to handle).
There are also limits on average order to trade ratios (this is required by MIFID2 IIRC).
In a physical store you wouldn't get to the shelves from the throng of clerks running around with sticker guns.
> If AWS goes down during the world's biggest shopping day, we don't blame the customers, we blame Amazon.
Yes. We do. But the customers blame us. It may not be our fault, but it's still our problem.
Have you ever actually researched the economic effects, or is that just a gut feeling?
If you look at it historically, as machines have come to dominate market making, spreads (the difference between buy and sell price) have continually fallen, meaning institutional investors and retailers can buy what they want at a better price. Machines are able to offer these better deals because they know they can get out of their position faster if the market suddenly moves; removing their ability to react faster would remove their ability to offer better prices.
Show me the produce, some say it is liquidity, and I withdraw my criticism.
Machine based market making tends to work well when markets are operating "normally". When some regime-changing news comes out, it's not uncommon for the over-fit algorithms to perform badly so the managers just turn them off. I.e. liquidity disappears just when it's needed most.
https://www.wsj.com/articles/thinning-liquidity-in-key-futur...
Similarly, if your house is on fire, it is hard to complain that buyers go away until they can evaluate how much the hashes are worth.
Market makers mostly provide a service for retail investors.
Why do investors need orders filled instantly?
It seems the only customers of this service are day-trading troublemakers.