Kraken Cracks Down on Front-Running, Takes Measures to Boost Liquidity

Cryptocurrency exchange Kraken is cracking down on front-running in its latest effort. The company has added a blog post to its website detailing measures designed to increase the liquidity of the market. The changes are affecting all trading pairs.

Kraken is removing the number of decimals available in the pricing of each pair. The effort will effectively create new limits to front-running. The change is designed to stem the practice, by which traders post an order with a lower or higher price in order to jump in front of a queue of orders at an exchange.

Users of Kraken that place an order with more decimal places than the exchange allows will have their orders cancelled. When a trader uses the percentage (%) option to specify a given order’s price, the result will be rounded down to the maximum allowed decimal place.

Front-Running

Front-running has been typically associated with high-frequency trading, a practice that has become synonymous with market abuse on Wall Street.

After the publication of the book “Flash Boys” by world-renowned, bestselling author Michael Lewis, the high-tech algo trading industry was widely scrutinized by media, regulators and the public.

With the number of decimals virtually unlimited with cryptocurrencies, front-running could in theory be applied indefinitely. The price precision algorithm of an exchange is an effective tool that can be applied to filter the application of this particular trading practice in the cryptocurrency world.

The exchange will apply the new rules effective Wednesday August 30th at around 6 am GMT/UTC (Tuesday August 29 around 11 pm PT). The move is the result of the increasing number of requests from Kraken clients.

Reducing price precision will help reduce extraneous activity in the order books as traders continually jump in front of each other by very small fractions, resulting in a higher volume of cancelled (unfilled) orders.

“We have received many requests from clients for this reduction and it will help reduce load on the trade engine with more efficient order books,” said Kraken in its official announcement.

List of Decimal Pricing Changes

Following is the full list of the affected instruments:

• BCH/XBT 6
• BCH/EUR 3
• BCH/USD 3
• DASH/XBT 6
• DASH/EUR 3
• DASH/USD 3
• EOS/XBT 6
• EOS/ETH 6
• ETC/XBT 6
• ETC/ETH 6
• ETC/EUR 4
• ETC/USD 4
• ETH/XBT 6
• ETH/CAD 3
• ETH/EUR 3
• ETH/JPY 1
• ETH/USD 3
• GNO/XBT 6
• GNO/ETH 6
• ICN/XBT 6
• ICN/ETH 6
• LTC/XBT 6
• LTC/EUR 4
• LTC/USD 4
• MLN/XBT 6
• MLN/ETH 6
• REP/XBT 6
• REP/ETH 6
• REP/EUR 4
• USDT/USD 4
• XBT/CAD 2
• XBT/EUR 2
• XBT/JPY 0
• XBT/USD 2
• XDG/XBT 8
• XLM/XBT 7
• XMR/XBT 6
• XMR/EUR 4
• XMR/USD 4
• XRP/XBT 6
• XRP/EUR 6
• XRP/USD 6
• ZEC/XBT 6
• ZEC/EUR 3
• ZEC/USD 3

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