Quote from: vadimg on November 09, 2011, 03:16:42 AM

Quote from: GamingG on November 08, 2011, 05:39:22 PM

If someone will receive a fee rebate for providing liquidity, wouldn't any rational trader factor this in to his or her trade, thus effectively eradicating the rebate?

I'm not sure what you mean... The entire point is for traders to factor the rebate into their trade, thus giving them an incentive to create tighter spreads.

If, as a trader, I have two goals:

My trade gives me at least my target amount of USD for Bitcoin, and
My trade is executed as soon as possible, without sacrificing the above point.

Then, if my target amount of USD for Bitcoin is, say, 4 USD/BTC, then, factoring in your rebate, I would instead sell for around 3.996 USD/BTC, since selling for 4 USD/BTC with no fee or rebate is identical to selling for around 3.996 USD/BTC with a 0.1% rebate. So, in all reality, the one who takes liquidity will always be paying the total amount of fees and the bid-ask spread if all liquidity-givers are behaving rationally.

Put another way, your exchange would operate identically if you charged something like a 50.3% fee to liquidity-takers and gave the 50% as a rebate to the liquidity-givers. The rebate doesn't amount to anything other than a gimmick to get people to use the exchange (unless you actually believe that such an exchange would have the same market price as the other exchanges?).