The Volume Clock: Insights into the High-Frequency Paradigm
Execution Strategies in Equity Markets
Execution Strategies in Fixed Income Markets
High-Frequency Trading in FX Markets
Machine Learning for Market Microstructure and High-Frequency Trading
A “Big Data” Study of Microstructural Volatility in Futures Markets
Liquidity and Toxicity Contagion
Do Algorithmic Executions Leak Information?
Implementation Shortfall with Transitory Price Effects
The Regulatory Challenge of High-Frequency Markets
In this chapter we discuss strategies, models and implementations used by large brokerage firms offering agency trading services to their clients. We focus on equities, although several of these methods and techniques are applicable or easily adaptable to other asset classes.
Information technology and regulatory changes (most notably Regulation National Market System (Reg NMS) in the US and Markets in Financial Instruments Directive (MiFID) in Europe) have drastically changed equities markets since the early 2000s. The ease and efficiency of electronic access and the opening up of liquidity provision to all market participants has led to a low latency, multi-venue marketplace, where large block trading has become rare and liquidity is always at a near critical point. This new market microstructure is the result of high-frequency algorithmic trading, defined as the execution of orders via a computerised, rules-based trading system. From a tool of automating repetitive tasks in its early days, algorithmic trading has become the dominant mode of quoting and transacting in equity markets.
Trading algorithms have very small reaction times to fluctuations in liquidity and price.