Intro -- High-Frequency Trading -- Contents -- Preface -- Acknowledgments -- 1 How Modern Markets Differ from Those Past -- Media, Modern Markets, and HFT -- HFT as Evolution of Trading Methodology -- What Is High-Frequency Trading? -- What Do High-Frequency Traders Do? -- How Many High-Frequency Traders Are There? -- Major Players in the HFT Space -- Organization of This Book -- Summary -- End-of-Chapter Questions -- 2 Technological Innovations, Systems, and HFT -- A Brief History of Hardware -- Messaging -- Messaging Protocols -- Core Message Architecture -- Speed and Security -- Network Throughput -- Software -- Summary -- End-of-Chapter Questions -- 3 Market Microstructure, Orders, and Limit Order Books -- Types of Markets -- Limit Order Books -- Aggressive versus Passive Execution -- Complex Orders -- Trading Hours -- Modern Microstructure: Market Convergence and Divergence -- Fragmentation in Equities -- Fragmentation in Futures -- Fragmentation in Options -- Fragmentation in Forex -- Fragmentation in Fixed Income -- Fragmentation in Swaps -- Summary -- End-of-Chapter Questions -- 4 High-Frequency Data -- What Is High-Frequency Data? -- How Is High-Frequency Data Recorded? -- Properties of High-Frequency Data -- High-Frequency Data Are Voluminous -- High-Frequency Data Are Subject to the Bid-Ask Bounce -- High-Frequency Data Are Not Normal or Lognormal -- High-Frequency Data Are Irregularly Spaced in Time -- Most High-Frequency Data Do Not Contain Buy-and-Sell Identifiers -- Summary -- End-of-Chapter Questions -- 5 Trading Costs -- Overview of Execution Costs -- Transparent Execution Costs -- Broker Commissions -- Exchange Fees -- Taxes -- Implicit Execution Costs -- Bid-Ask Spreads -- Slippage or Latency Costs -- Price Appreciation and Timing Risk Costs -- Opportunity Costs -- Market Impact Costs -- Background and Definitions.

Estimation of Market Impact -- Empirical Estimation of Permanent Market Impact -- Data Preparation -- Basic Estimation Model -- Summary -- End-of-Chapter Questions -- 6 Performance and Capacity of High-Frequency Trading Strategies -- Principles of Performance Measurement -- Basic Performance Measures -- Return -- Volatility -- Drawdown -- Win Ratio -- Average Gain/loss -- Correlation -- Alpha and Beta -- Skewness and Kurtosis -- Comparative Ratios -- Performance Attribution -- Capacity Evaluation -- Length of the Evaluation Period -- Alpha Decay -- Summary -- End-of-Chapter Questions -- 7 The Business of High-Frequency Trading -- Key Processes of HFT -- Financial Markets Suitable for HFT -- Economics of HFT -- Costs of Doing HFT Business -- Costs of Data -- Capitalization of HFT -- Leverage of HFT -- Market Participants -- Competitors -- Investors -- Services and Technology Providers -- Government -- Summary -- End-of-Chapter Questions -- 8 Statistical Arbitrage Strategies -- Practical Applications of Statistical Arbitrage -- General Considerations -- Equities -- Foreign Exchange -- Indices and ETFs -- Options -- Cross-Asset -- Summary -- End-of-Chapter Questions -- 9 Directional Trading Around Events -- Developing Directional Event-Based Strategies -- What Constitutes an Event? -- Forecasting Methodologies -- A Practical Example -- Tradable News -- Corporate News -- Industry News -- Macroeconomic News -- Application of Event Arbitrage -- Foreign Exchange Markets -- Equity Markets -- Fixed-Income Markets -- Futures Markets -- Emerging Economies -- Commodity Markets -- Real Estate Investment Trusts -- Summary -- End-of-Chapter Questions -- 10 Automated Market Making-Naïve Inventory Models -- Introduction -- Market Making: Key Principles -- Simulating a Market-Making Strategy -- Naïve Market-Making Strategies -- Fixed Offset.

Volatility-Dependent Offset -- Offset Is a Function of Order-Arrival Rate -- Trend-Dependent Offset -- Market Making as a Service -- The Tightness of the Bid-Ask Spread -- Market Depth at Best Bid and Best Ask -- Shape of the Order Book -- Price Sensitivity to Block Transactions -- Price Sensitivity to Order-Flow Imbalance -- Price Change per Unit Volume -- Technical Support and Resistance Levels -- Market Resilience -- Profitable Market Making -- Summary -- End-of-Chapter Questions -- 11 Automated Market Making II -- What's in the Data? -- Case 1: Market Does Not Move -- Case 2: Market Moves and Rebounds -- Case 3: A Trade Moves Markets -- Case 4: The Quotes Widen -- Modeling Information in Order Flow -- Autocorrelation of Order Flow as a Predictor of Market Movement -- Order Aggressiveness as a Predictor of Market Movement -- Shape of the Order Book as a Predictor of Market Direction -- Evolution of Tick Data as a Predictor of Market Movement -- Summary -- End of Chapter Questions -- 12 Additional HFT Strategies, Market Manipulation, and Market Crashes -- Latency Arbitrage -- Spread Scalping -- Rebate Capture -- Quote Matching -- Layering -- Ignition -- Pinging/Sniping/Sniffing/Phishing -- Quote Stuffing -- Spoofing -- Pump-and-Dump -- Machine Learning -- Summary -- End-of-Chapter Questions -- 13 Regulation -- Key Initiatives of Regulators Worldwide -- Jurisdiction -- Stability of Systems: Detecting error-prone algorithms -- Currently Deployed Measures for System Stability -- Investor Protection -- Efficient Trade Matching -- Market Structure -- Summary -- End-of-Chapter Questions -- 14 Risk Management of HFT -- Measuring HFT Risk -- Regulatory and Legal Risk -- Credit and Counterparty Risk -- Market Risk -- Liquidity Risk -- Summary -- End-of-Chapter Questions -- 15 Minimizing Market Impact -- Why Execution Algorithms? -- Order-Routing Algorithms.

Minimize Execution Costs -- Obtain Best Price -- Maximize Execution Speed -- Minimize Footprint -- Maximize Trading Size -- TWAP -- VWap -- Issues with Basic Models -- Optimality Conditions for Earlier Models -- Security of Earlier Models -- Advanced Models -- When Price Follows Geometric Brownian Motion -- When Price Follows a Generalized Market Impact-Based Function -- Case 1: Exponential Market Resiliency -- Case 2: Power-Law Market Resiliency -- Case 3: Linear Market Resiliency -- Practical Implementation of Optimal Execution Strategies -- Summary -- End-of-Chapter Questions -- 16 Implementation of HFT Systems -- Model Development Life Cycle -- System Implementation -- Key Steps in Implementation of high-Frequency Systems -- Common Pitfalls in Systems Implementation -- Testing Trading Systems -- Data Set Testing -- Unit Testing -- Integration Testing -- System Testing -- Use-Case Testing -- Summary -- End-of-Chapter Questions -- About the Author -- About the Website -- References -- Index.

A fully revised second edition of the best guide to high-frequency trading High-frequency trading is a difficult, but profitable, endeavor that can generate stable profits in various market conditions. But solid footing in both the theory and practice of this discipline are essential to success. Whether you're an institutional investor seeking a better understanding of high-frequency operations or an individual investor looking for a new way to trade, this book has what you need to make the most of your time in today's dynamic markets. Building on the success of the original edition, the Second Edition of High-Frequency Trading incorporates the latest research and questions that have come to light since the publication of the first edition. It skillfully covers everything from new portfolio management techniques for high-frequency trading and the latest technological developments enabling HFT to updated risk management strategies and how to safeguard information and order flow in both dark and light markets. Includes numerous quantitative trading strategies and tools for building a high-frequency trading system Address the most essential aspects of high-frequency trading, from formulation of ideas to performance evaluation The book also includes a companion Website where selected sample trading strategies can be downloaded and tested Written by respected industry expert Irene Aldridge While interest in high-frequency trading continues to grow, little has been published to help investors understand and implement this approach-until now. This book has everything you need to gain a firm grip on how high-frequency trading works and what it takes to apply it to your everyday trading endeavors.

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Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2018. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.