In a manner of speaking, I guess you could say that when LMSR traders agree on prices they don’t trade, and when they disagree, they do trade. But this doesn’t differ too much, in terms of the market point of view, from CDA.
While CDA traders explicitly agree on a price to trade at, in some sense the agreement on a price to trade reflects an underlying disagreement. The buyer thinks the price is lower than the event probability and the seller thinks the price is higher than the event probability. Once everyone agrees, trading stops.
So, too, you could say that when CDA traders agree they don’t trade, and when they disagree, they do trade.
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Great point by GMG, indeed. When everyone agrees, a market has reached consensus and trading stops; this is a property nearly synonym to the term ‘market’.
I could add that a transaction in CDA requires two traders who disagree with each other on the direction of current price’s change (the first one believes that current price is low, while the other one that it’s high) and transaction volume is defined by the more conservative trader (the one that moves price less).
On the other hand, you don’t need a partner to trade in both DPM and MSR. Anybody can move prices as much as she wants, anytime she wants; infinite liquidity is facilitated by DPM in one direction (buy) and by MSR in both two directions (buy and sell). This intrinsic sensibility to even a single trader’s beliefs of the new mechanisms is maybe the most appealing reason for their applicability in prediction markets.
There is no such thing as infinite liquidity!!!!!!
Someone has to be on the other side of the trade!