Market microstructure trading strategies

Trading Strategies and Market Microstructure: Evidence from a Prediction Market. January ; SSRN Electronic Journal. DOI: /ssrn.
Table of contents

• Market Microstructure and Trading (2018-2021)
• Market Microstructure | SpringerLink
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There will be a focus on the linear regression, autoregressive and moving average models, trends, co-integration, and conditional heteroskedasticity. There will also be an introduction to resampling techniques, such as bootstrap and MCMC" OPEN eu Schmidt, Anatoly B. Divided into three comprehensive parts, this reliable resource offers a balance between the theoretical aspects of market microstructure and trading strategies that may be more relevant for practitioners. Along the way, it skillfully provides an informative overview of modern financial markets as well as an engaging assessment of the methods used in deriving and back-testing trading strategies.

If you're unprepared to enter today's markets you will underperform.

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But with Financial Markets and Trading as your guide, you'll quickly discover what it takes to make it in this competitive field. He has been working as a quantitative analyst in the financial industry since Schmidt has published several papers on agent-based modeling of financial markets, market microstructure, and algorithmic trading as well as a book entitled Quantitative Finance for Physicists: An Introduction.

Permissions Request permission to reuse content from this site. This usually happens when the financial instrument is illiquid.

If the number of limit orders for the asset is low—which is the case of illiquid instruments, such as rarely traded stocks—it will be more likely that a MO will have to walk the book in order to complete its execution. Very liquid assets, however, will probably have enough limit orders at the best price in order to fully execute MO of reasonable sizes. For instance, take a look to Figure 1.

Both LOB correspond to the 10,th trade of the day. This is also reflected on the LOB. It is clear that a MO sent to buy or sell HPQ shares will probably be filled without having to walk the book, while the volume available at the best price for FARO shares will probably not be enough to fill the complete market order.

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Since High Frequency Trading is relatively new, existing books on the topic are rather scarce, at least compared to books on other fields of investment theory or quantitative research. However, there are some really interesting and useful books that are worth reading. After discussing how market microstructure works, the book uses tools from stochastic analysis to tackle problems such as optimal liquidation or optimal acquisition problems in the high-frequency setting, where the challenge is to buy or sell a certain number of shares at the best possible price.

The book also discusses some HFT strategies.

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It is a book I really recommend for the reader that wants to know more about the topic. In fact, some parts of this series of articles are influenced by this book. It is oriented to HFT strategies, as well as appropriate ways of backtesting them and analysing their performance. It also has some very interesting insights about the HFT business and is worth taking a look.