Algorithmic trading and Direct Market Access (DMA) are important tools helping both buy and sell-side traders to achieve best execution. This book starts from the ground up to provide detailed explanations of both these techniques: An introduction to the different types of execution is followed by a review of market microstructure theory. Throughout the book examples from empirical studies bridge the gap between the theory and practice of trading. Orders are the fundamental building blocks for any strategy. Market, limit, stop, hidden, iceberg, peg, routed and immediate-or-cancel orders are all described with illustrated examples. Trading algorithms are explained and compared using charts to show potential trading patterns. TWAP, VWAP, Percent of Volume, Minimal Impact, Implementation Shortfall, Adaptive Shortfall, Market On Close and Pairs trading algorithms are all covered, together with common variations.
Transaction costs can have a significant effect on investment returns. An in-depth example shows how these may be broken down into constituents such as market impact, timing risk, spread and opportunity cost and other fees. Coverage includes all the major asset classes, from equities to fixed income, foreign exchange and derivatives. Detailed overviews for each of the world’s major markets are provided in the appendices.
Order placement and execution tactics are covered in more detail, as well as potential enhancements (such as short-term forecasts), for those interested in the specifics of implementing these strategies.Cutting edge applications such as portfolio and multi-asset trading are also considered, as are handling news and data mining/artificial intelligence. File Size: 19.443KB File Type: pdf Pages:.
Page 1 of 1 Display using: Total Posts: 3 Joined: Jan 2012 Posted: 2012-01-10 08:18 Thanks for the help. Total Posts: 1764 Joined: Jul 2004 Posted: 2012-01-10 09:31 I am not going to reply to all. First I think this is good to prepare before the actual training but i would focus on getting the basics really clear. For option market making, what you can read is limited. It is important you understand BS pricing (read the know your weapon serie by haug, reread hull or other text book). So many option MM I know don't really understand it (yet they make money).
Usually for firms doing HFT and option MM, that's simply two different desks and in my experience trader don't really cover both. Quant's and IT's do more overlap but trader specialize. It's getting less and less true as some idea of HFT get plugged in option MM systems but still. I think it is a different mindset.
Usually option trader assume/believe that underlying is fairly unpredictable and work on earning bid/ask and taking the right volatility and dividend views (i simplify). They are not making fast in/out in position (volatility trading doesn't work that way really). HFT are about finding inefficiencies they can exploit, different approach in my view suited to different people.
Regarding books to find inefficiencies, I would not count on that at all. I think to learn strategies, your best bet is to be in a good team with experienced people.
Qui fait le malin tombe dans le ravin Total Posts: 1258 Joined: Jun 2004 Posted: 2012-01-10 14:32 if you are really starting from scratch i would first read 'option trading' by sinclair. It is at the level of natenberg (which sucks) or baird (which doesn't but is dated).
As balt said, you won't find much on trading strategies which isn't stupid (eg technical analysis). And don't worry about not having done measure theory. I think even stochastic calculus is wildly over-rated. Most pricing that can be done that way has been done already.
I don't know (IRL)a single successful trader who knows that stuff. No exaggeration. I used ito's lemma last week for the first time in about 10 years. I had to google it. 'Game's the same, just got more fierce' Total Posts: 3 Joined: Jan 2012 Posted: 2012-01-10 17:54 balt - Thanks, I've already gone through much of Hull from undergrad but I will revisit the BS and make sure I fully understand it.
What you say is puzzling because I had heard from a trader from one of the dutch MMs that, in fact, options MM and HFT are highly interrelated. I suppose that this could depend on the firm? I do agree with what you say about the mindsets being non-overlapping. Filthy - Thanks for assuaging my measure theory concerns (and for writing the book)! I think you mentioned a very relevant point - that it's hard to find a book on strategies that isn't stupid.
As a result, I have a very unclear idea about how one goes about developing current, practical trading strategies. That is why I wanted to make this topic, to find out what the skill set / knowledge requisites to coming up with trading strategies in an institutionalized setting are.
Then again, maybe I will have a better idea after I go through your book (I went through half of Natenberg and I didn't find it particularly insightful). Basically, I know that various statistical methods are applied to trading, but I don't know which ones are most relevant to what I'm doing. I suppose a primary goal is to get a better forecast of volatility, hence the time series stuff, and understanding market microstructure is essentially learning the rules of the game, but what else is there? Should I not even think about these other areas and just focus on pure options trading books? I hear stories like 'xx trader came up with a great idea that was scalable across the entire firm, and got paid off huge', and I have no idea what the nature of these ideas are like.
Did the trader simply make an observation about some pattern? If so, was this just an intuitive observation or did he conduct actual statistical analysis to discover it? Or did the trader realize that one of the assumptions of a model used by the firm was not being supported? If so, was this again just intuitive, or did he go through actual, outside-of-trading-hours research to discover it?
If most of these great ideas are just intuitive insights and observations, then perhaps there isn't much point in looking at all these statistics books. But if there are systematic ways to reach them, and if sophisticated analytical methods can help, then I would like to know what these ways and methods are. Total Posts: 1258 Joined: Jun 2004 Posted: 2012-01-11 00:55 Most option trading books are garbage. Baird is isn't and I don't think mine are but most are totally irrelevant to pros. I think some hft ideas are very similar to classic market making methods, which is what mst pro option traders do. If you want to study learn excel, vba, access, sql, python and r.
Ideas are bullshit. Implementation is everything. 'Game's the same, just got more fierce' Total Posts: 176 Joined: Mar 2007 Posted: 2012-01-11 06:03 Aren't you over-thinking it? Total Posts: 1764 Joined: Jul 2004 Posted: 2012-01-11 08:51 regarding HFT and MM, I've been working at 3 dutch MM shops, it was always separated desks.
In my experience, HFT is about trading stocks or future rather than options. Ideas might be similar, as I meant by IT and quant work on both, but for the pure trader it is rather different. Maybe your friend is from another shop where it is not the same, it's of course possible.
Maybe your friend is more quant and that would be why he sees the overlap. Understand why you make money when you are gamma long and the stock moves (do you always?), understand why you loose money when the implied volatility changes, understand the link between your greeks. Understand how your skew position will react to underlying moves under different market assumptions. This is what matter for an option MM in my view. Hence the pointer to the Haug papers.
As astar point out, most of what you'll need to know will be teached during the traineeship anyway. Qui fait le malin tombe dans le ravin Total Posts: 237 Joined: Jan 2009 Posted: 2012-01-11 23:10 as an undergrad there is little chance you will have meaningful responsibility. You should probably use this time to go backpacking across country region of your choice instead. (trust me if you look back on this post 3 years from now it will look like genius) Total Posts: 192 Joined: Jan 2008 Posted: 2012-01-12 03:36 @SuomynonaYug There´s a whole trading universe out there. Some start at companies or shops then go on their own. I have been trading emerging markets very successfully for half a decade now, including the wild ride of '08.
I am a small prop shop doing a mix of quant trading (not ultra-high) and vol trading, and besides, a small bit of consulting on financial and economics for local companies here in my country. My 2c's on trading for you, from my perspective: 1 - Everything can work, everyone can be a winner, and everything can´t work, everyone cannot be a winner. Depends on whats in between. 2 - Know your edge and keep it simple.
Options: know your greeks to the point of dreaming about greek speaking girls. 3 - Never forget your are doing it for the money, not to acquire all the quantitative knowledge in the world. Academic ego wont payoff, and your productive lifetime is finite. 4 - Try doing your thing for some time, be truthful and corageous to accept if you really want it and have what it takes (including the midset) to go for it.
Its not for everyone, and its not a shame if you cant handle it. Most of world´s geniuses wouldnt succeed in trading. 5- Just dont go broke or mad or delusional or sucidal (not joking). Have a girlfriend. 6 - Do some combat sports like jiu-jitsu or ultimate fighting, to relax.
7 - I liked filthy´s book. And i read more books on finance than i should have, and i really read them all. 8 - If you want some more fun and games, read my interview for automated trader mag here, some trading insights: 'One who says it can't be done should not interrupt the person doing it.'
Total Posts: 3 Joined: Jan 2012 Posted: 2012-01-12 09:14 filthy - Yes, I forgot to mention that I am devoting plenty of time to refining my programming abilities - specifically C#, VBA, and R. Part of the intention of my original post was to find some relevant concepts that I could apply my programming skills on. I think I'll pick up a copy of your book ahead of time and look for stuff to try to build and play around with. Astar - Possibly. But I figure since I will be allocating some of my free time to learning, I might as well see if there are ways to learn more optimally. Baltazar - I will definitely check out the Haug papers. I get the sense from you and some other traders that I've talked to that my aim should not just be to 'know' options theory, but to internalize it and be able to understand how the parameters interact without even thinking about them.
I won't take on too much and I'll focus on learning the basics well. Quantz - I actually went on a trip to Asia around a month ago and I'm not too big on travelling. But I get what you're trying to convey - I definitely won't squander what will likely be the last extended vacation I will have for a while. MrMagoo - Great advice. #2 aligns with the point I mentioned above. #3 is also helpful since after spending lots of time on this website, I certainly get the feeling that I should know more (and hence should pursue a masters at the very least). I found your interview to be very interesting.
Thanks for sharing the helpful pieces of advice. Total Posts: 523 Joined: Jun 2004 Posted: 2012-01-12 09:18 it's not on HTF, but worth a read for anyone taking a position. That's a senior gas trader who told me to read it once.
Algorithmic Trading And Dma Barry Johnson Pdf To Excel Online
Most dangerous market i've ever seen. Here is a pdf: by Jesse Livermore aka Edwin Lefevre /.
Trust is good, no trust is better./ Total Posts: 721 Joined: Jun 2004 Posted: 2012-01-12 15:40 @MrMagoo Oh, that's you! I read the article when it came out and thought it was kind of interesting. I see you are doing a bit of particle filtering from the whiteboard. How is that working?
“Whatever you do, or dream you can, begin it. Boldness has genius and power and magic in it.” Total Posts: 192 Joined: Jan 2008 Posted: 2012-01-12 18:52 Hello Scotty. Yeah that's me. Particles Filter is a small piece of the agent-based macro model we use. Overall, 'real' business are doing OK on this side of the planet, but i really trade global markets. You know, as we make a living of volatility, trading-wise we are only afraid of the mayan calendar predicting the end-of-the world in 2012.
If you come nearby just email me so we can have a beer. 'One who says it can't be done should not interrupt the person doing it.' Total Posts: 138 Joined: Jun 2009 Posted: 2012-01-12 19:12 Looking to take on a younger guy (systems engineer morphed trader). I'll be giving him the following texts off my shelf for some microstructure exposure: Algorithmic Trading & DMA (2010) - Barry Johnson Trading & Exchanges (2002) - Harris Empirical Market Microstructure (2007) - Joel Hasbrouck Market Microstructure Theory (1998) - O'Hara AT & DMA is imo an excellent source to get solid introductory footing.
Even the research reference list (pg 545-568) was exceptionally helpful. If you had to start with one, I'd recommend this over Harris, but both should be read. Hasbrouck a bit heavier/dry, but eventually worth reading. These txts will wet your palette, get you familiar with common lingo, and should help you feel a bit more comfortable when interacting with your new team. You will obviously learn far more from experience and one-on-one's with your group's strategy developers and traders. I'd also.highly. recommend you go to the forums originating history back in 2004, initiate with the 'Trading' & 'Basics' sections, and start plowing through.
Bookmark all relevant threads. Far more practical information in this forum than any book. Most of the topics discussed here in 2004-2006 are still relevant today. Total Posts: 1106 Joined: Feb 2007 Posted: 2012-01-14 01:12 - Some review on time series, probably something applied like: Analysis Of Financial Time Series by Tsay. ' Read Makridakis instead. Tsay is useful, but not for didactics.
Makridakis contains most of what you need to know, explained in small MBA digestible words. The encyclopedia of trading strategies - Evidence based technical analysis - Expert trading systems: Modelling financial markets with kernel regression None of these should be read by a rank beginner, as they are filled to the nostrils with unutterable bullshit. They also contain useful insights, but you won't be able to tell which is which until you don't really need them. This may sound weird, but I think everyone should read Grinold and Kahn.
You might as well know who you're trading against. MrMagoo FTW: 5- Just dont go broke or mad or delusional or sucidal (not joking). Have a girlfriend.
Barry Johnson Baseball
6 - Do some combat sports like jiu-jitsu or ultimate fighting, to relax. Keeping sane is important. Weights and BJJ are awesome ways to keep sane. Girlfriends can be. Switching them while under stress certainly ain't.
'Learning, n. The kind of ignorance distinguishing the studious.' Total Posts: 192 Joined: Jan 2008 Posted: 2012-01-14 19:25 @jslade Switching them while under stress certainly ain't.
You've got a point. 'One who says it can't be done should not interrupt the person doing it.' Total Posts: 390 Joined: Aug 2007 Posted: 2012-01-14 22:05 I'll second O'Hara for Market Microstructure and Algorithmic Trading by Johnson 'Mathematicians are machines for turning coffee into theorems!' Total Posts: 746 Joined: Mar 2006 Posted: 2012-01-17 16:41 My first choice would be Nassim Taleb's Dynamic Hedging. It's not for the specifics, many of which are out of date, but it's by far the best published account of how to think about dynamic portfolios of options.:: Notify me when someone replies to this thread Bookmark this thread Page 1 of 1.