Less information means greater risk.
How is risk introduced into this?
With less information about your market, I cannot predict as effectively how it will move. Since I can't get cash out of your exchange quickly, I risk being stuck with cash that cannot do anything useful. I might be willing to take that additional risk, but not for free.
I'd say risk is reduced because your orders have a lower chance of moving the market, so your orders will end up costing less.
That's a miniscule risk. The vast majority of orders are not mine. I lose information for every not-mine order and gain for every mine order. I'd have to gain an awful lot on every order of mine to compensate for the much greater order of magnitude of orders that are not mine.
Since every transaction on your exchange would have higher risk than an otherwise similar transaction on a more open exchange, you'd have to charge lower commissions to get my business.
Let's assume this exchange has no transaction fees for the purpose of this discussion.
Then I might be willing to take the greater risk. It would help a lot if I could get cash out of the exchange quickly too.
but not being able to see the market I'm trading into harms me quite a bit.
I'd agree if some people had the information and others didn't but since nobody has the market depth then I don't see how it's harmful. Plus I would argue that in an transparent market you don't have all the information either because of trading bots.
Okay, fine, I benefit a tiny bit by hiding my own information from others. But I am harmed much more by not being able to see any other transactions. Keeping other people in the dark about other people's transactions, which I also don't know about, doesn't help me at all.
In sum:
My few transactions: Slight help to me per transaction.
Other people's many transactions: Moderate harm to me per transaction.
Net: Huge harm to me.
