No bots?

I would argue for exactly the opposite: An exchange with built-in automatic trading capabilities so that all users have the option to preprogram their responses to the market as easily as possible.

Consider:

It is very difficult & time consuming to trade bitcoin optimally without assistants who watch & react to the market for you 24/7. Automation lets you more perfectly execute your trading plan.

There seems no way for an exchange to completely prohibit bots, because software can interact with a web page just as any ordinary user can. (A bot can parse the HTML or screen-scrape the web browser. Also, you need to provide APIs if you want to let users use external trading platforms such as Metatrader, Zeroblock, BitcoinCharts Pro, etc.)

The most you can do is minimize bots and prohibit high-speed trading. An exchange would have to place restrictions on all traders, by limiting the number of trades which can occur in a certain amount of time, or (annoyingly) by requiring completion of a captcha every so many trades. (But captchas can be bypassed in real time at low cost via services using software and human workers to solve them. They would mainly annoy your regular customers.)

Worst of all, eliminating automated trading would tend to make your exchange much less popular: spreads would be much larger, volume would be reduced, arbitrage would have longer lags, and there would be less "action." There would still be arbitrage going on, however: your price would generally follow that of any other exchange, just not moment to moment. So you could not simply isolate your exchange from all the others which are influenced by bots.


(Regardless, we should only support exchange designs where users retain most or all control over their assets and how they will be traded. GIven that, you can't tell users not to use algorithmic trading, but you can make it available to all users.)