FAQ

How do I access the preview of "Algorithmic Trading & DMA"?

Simply Download the file.

Why is this a self-published book?

One of the aims of this book is to try and raise some funds for research into multiple myeloma (the cancer which claimed my mum last summer). In order to try and maximise the percentage raised from each copy I have opted to self publish this edition using createspace.com.

Will an electronic version be available?

There are no plans at the moment.

What is myeloma?

Myeloma is an incurable cancer affecting the immune system's plasma cells, which are found in the bone marrow. It is the second most common blood cancer. For instance in the US in 2005 over 15,000 new cases were diagnosed, in the same year there were over 10,000 deaths due to myeloma.

Why are you asking for donations to a myeloma charity?

My mum was diagnosed with myeloma in 2003. After battling it for six years she passed away in June; despite a stem cell transplant and three different regimes of aggressive chemotherapy.
Over the last few years a lot of progress has been made with a range of new treatments. However there is still a long way to go, funding for research and support is a lot lower than other better known cancers.

Buy

Algorithmic Trading & DMA is currently printed by CreateSpace.com. It is available from Amazon:

US UK France
Germany Italy Spain

It is also available from createspace.com - I think the shipping charges may be more than amazon (but the myeloma charity gets a higher percentage of the proceeds).


For other international readers I'm afraid Amazon.com is probably the best option at the moment (for many countries the delivery charges seem to be a few dollars). There may be links on some other book sellers websites - but these will not be able to actually order the book - since the extended distribution costs are too high.

Contents

Algorithmic Trading & DMA

An introduction to direct access trading strategies.
By Barry Johnson


Page
Preface xiii
Part I An overview of trading and markets 1
1Overview 3
1.1 Introduction 3
1.2 Fundamentals 5
1.3 Core execution methods 6
1.4 Institutional trading types 8
1.5 Electronic trading 10
1.6 Algorithmic trading 11
1.7 Direct Access Trading 15
1.8 Comparing execution methods 17
1.9 How much are these execution methods used? 21
1.1 Fears and myths 22
1.11 Summary 25
2Market microstructure 27
2.1 Introduction 27
2.2 Fundamentals 28
2.3 Market structure and design 30
2.4 Trading mechanism research 39
2.5 Transaction cost measurement and analysis 47
2.6 Summary 51
3 World markets 53
3.1 Introduction 53
3.2 Asset classes 54
3.3 Market structure 58
3.4 Global market trends 66
3.5 Global market comparison 74
3.6 Summary 78
Part II Algorithmic trading and DMA strategies 81
4 Orders 83
4.1 Introduction 83
4.2 Market orders 84
4.3 Limit orders 85
4.4 Optional order instructions (Duration, session, fill, routing, linking etc.) 88
4.5 Other order types (Hybrid, conditional, hidden, routed, crossing etc.) 96
4.6 Summary 112
5Algorithm overview 115
5.1 Introduction 115
5.2 Categorising algorithms 116
5.3 Common features of algorithms 118
5.4 Impact-driven algorithms (TWAP, VWAP, POV etc.) 119
5.5 Cost-driven algorithms (Implementation Shortfall etc.) 132
5.6 Opportunistic algorithms (Price inline, liquidity-driven etc.) 143
5.7 Other trading algorithms 154
5.8 Summary 160
6Transaction costs 161
6.1 Introduction 161
6.2 The investment process 162
6.3 Pre-trade analysis 165
6.4 Post-trade analysis 167
6.5 Breaking down transaction costs 173
6.6 Transaction costs across world markets 184
6.7 Summary 186
7 Optimal trading strategies 189
7.1 Introduction 189
7.2 Assessing the difficulty of orders 190
7.3 Selecting the optimal trading strategy 192
7.4 Choosing between trading algorithms 199
7.5 To cross or not to cross? 211
7.6 Market conditions during the 2007-09 financial crisis 213
7.7 A decision tree for strategy selection 214
7.8 Summary 217
Part IIIImplementing trading strategies 219
8 Order placement 221
8.1 Introduction 221
8.2 Price formation 222
8.3 Price discovery/Order matching 226
8.4 Order placement decisions 234
8.5 Dealing with hidden liquidity 247
8.6 Estimating execution probability 252
8.7 Summary 254
9 Execution tactics 257
9.1 Introduction 257
9.2 Designing execution tactics 258
9.3 Algorithm selection 270
9.4 Summary 275
10Enhancing trading strategies 277
10.1 Introduction 277
10.2 Forecasting market conditions 278
10.3 Estimating transaction costs 292
10.4 Handling special events 300
10.5 Summary 309
11Infrastructure requirements 311
11.1 Introduction 311
11.2 Order management 312
11.3 Algorithmic trading 322
11.4 Other requirements 334
11.5 Summary 337
Part IVAdvanced trading strategies 339
12Portfolios 341
12.1 Introduction 341
12.2 Portfolio risk 342
12.3 Transaction cost analysis for portfolios 351
12.4 Optimal portfolio trading 352
12.5 Portfolio trading with algorithms 360
12.6 Summary 367
Addendum A: Covariance 369
13Multi-asset trading 371
13.1 Introduction 371
13.2 Multi-asset trading strategies 372
13.3 Utility strategies (FX cash trades, covering shorts) 374
13.4 Structured strategies 374
13.5 Hedging strategies (Beta, duration, gamma/delta) 375
13.6 Arbitrage strategies (Basis, index, ETF, futures and option) 383
13.7 Adapting algorithms for multi-asset trading 397
13.8 Summary 400
14News 401
14.1 Introduction 401
14.2 Types of news 401
14.3 The changing face of news 404
14.4 Computerised news handling techniques 409
14.5 Market reactions to news 416
14.6 Incorporating news into trading strategies 432
14.7 Summary 437
15 Data mining and artificial intelligence 439
15.1 Introduction 439
15.2 Data mining 440
15.3 Artificial Intelligence 448
15.4 Incorporating in trading strategies 461
15.5 The future 468
15.6 Summary 469
Epilogue 471
Appendices 473
A Equity markets 474
B Fixed income markets 495
C Foreign exchange markets 504
D Money markets 509
E Derivatives markets 515
F Other markets 534
Abbreviations & Acronyms 543
References 545
Index 569

Preview

Download a preview of the new book "Algorithmic Trading & DMA" from:

MediaFire.com


Please also check the FAQ which I'll update periodically.

Links

Press

Automated Trader magazine announced the book release.

Advanced Trading also reported the book release.

Traders Magazine have a nice article on the book release.

 


Algorithmic Trading




Transaction Cost Analysis




Market microstructure



Derivatives






Direct Market Access (DMA)



Electronic Trading

Contacts

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Issues

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Obtaining permissions

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Disclaimer

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If you access and use this Website (the "Site"), you accept and agree to be bound by and comply with these legal terms of use (the "Disclaimer"). If you do not accept the Disclaimer, do not use the Site.

This Site and related literature is for informational purposes only. The information contained on this website should not be construed as financial or investment advice on any subject matter. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. The author expressly disclaims all liability in respect to actions taken based on any or all of the information on this website.

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MyelomaDonations

Myeloma receives a lot less attention (and funding) than other more well known cancers. Please make a donation to one of the following charities it really will make a difference.
In the U.K.:

Donate Myeloma UK Do a great job of supporting myeloma patients as well as funding research into myeloma
In the U.S.:
Donate MMRFAre a key source of funding for research into myeloma



The donation forms also allow you to enter Memorial/Tribute information. If you could make the donation in memory of Margaret Johnson (my mum), it will help me to track them.


Also if you are in the UK remember you may be able to gift aid your donation, allowing the charity to claim the tax back.

Overview

Algorithmic Trading & DMA

This book provides a detailed introduction into algorithmic trading and direct market access (DMA). It caters for any investors, traders, quants or software developers who want to know more about these techniques.

Note the aim is to take the reader from the ground up, so very little knowledge of the markets or trading is assumed. Similarly there are no requirements for any programming knowledge: the basis of most algorithms is tackled graphically, though there is some maths.

Although this is not an advanced text even experienced traders may benefit. The coverage encompasses all the major asset classes, from stocks to bonds, FX and derivatives. Also it covers more cutting edge topics, such as portfolio and multi-asset trading and news handling and artificial intelligence.

Another aim of this book is to try and highlight the phenomenal amount of research has been carried out into trading and markets, and help to bridge some of the gaps between the practice of trading and the theory. So throughout reviews of relevant empirical research are provided.

Structure

Part I provides a broad overview of algorithmic trading and direct market access, highlighting their roles as core execution methods for institutional trading. Market microstructure is introduced to show the key differences between leading market structures and trading mechanisms. This then leads to a review the world’s major asset classes and their respective markets. More detailed asset-class reviews are also provided in the appendices.

Part II concentrates on the specifics of algorithmic trading and DMA.
We start with orders since these are the basic building block for all trading strategies. Coverage is provided for the whole range of different order types and conditions which are available on the world’s markets.
Detailed examples are given throughout illustrating the mechanism of each order type.

Next we consider trading algorithms. They are classified using three main types, namely impact-driven (e.g. VWAP), cost-driven (e.g. implementation shortfall) and opportunistic (e.g. liquidity seeking). For each algorithm we examine their basic mechanism, as well as discussing common variations. To allow more comparison a standard example order is used throughout. This, combined with charts showing the potential trading patterns,
helps highlights both the differences and similarities between the various algorithms.

Finally we move on to see how transaction cost analysis may be applied and consider how to find the optimal trading strategy.

Part III focuses more on the details for implementing algorithmic trading and DMA strategies. Starting with order placement we then progress to see how common tactics may be used to achieve the goals of algorithms, as well as reviewing methods for enhancing the performance of these strategies, such as short-term forecasting, cost estimation and handling specific events such as witching days or trading halts. The technological aspects of implementing these strategies are also considered.

Part IV looks at the techniques which are still at the cutting edge of algorithmic trading, namely portfolio and multi-asset trading, handling news and artificial intelligence. For each topic we review the basic theory and then see how best to tailor trading algorithms for this.

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