Market microstructure is generally speaking the way markets are organized at the impact of there structure on the price formation process.

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How 'High' is the frequency in HFT?

How many trades per second are we talking about? What kind of strategies are used in this time frame? Can the small guy play the game?
25
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3answers
7k views

How can we reverse engineer a market-making algorithm (HFT)?

Consider a market participant $A$ who is mechanically following an automated liquidity providing algorithm (HFT) in a number of large cap stocks on a specific exchange. Assume furthermore that we are ...
23
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9answers
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Has high frequency trading (HFT) been a net benefit or cost to society?

Various studies have demonstrated the very large and growing influence of high frequency trading (HFT) on the markets. HFT firms are clearly making a great deal of money from somewhere, and it stands ...
12
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4answers
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Implementing data-structures in a Limit order book

I'm working on implementing a 'LOB' and I'm being very careful about choosing my data-structures so as to maximize performance. Using F# as an example, I need to consider a List versus Array for ...
11
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3answers
2k views

Techniques to optimize the placement of orders in market making strategy?

Market making often requires placing and canceling a lot of orders. You have to buy and sell nearly simultaneously, so you need to move orders pretty often to beat other traders. But I would like to ...
10
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5answers
3k views

What exactly is meant by “microstructure noise”?

I see that term tossed around a lot, in articles relating to HFT, and ultra high frequency data. It says at higher frequencies, smaller intervals, microstructure noise is very dominant. What is ...
10
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6answers
2k views

References for developing an automated trading system?

I am looking for references on the architecture of automated trading systems and the trading algorithms behind them. I am more interested in system development than analysis. A couple of books I ...
8
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3answers
228 views

Are there any standard techniques for adding realistic synthetic microstructure noise to a price series?

This may seem like a strange question, but for my particular application we need to actually add synthetic microstructure noise to real time charts. The signal should still be representative of the ...
8
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1answer
595 views

Quantitative before/after or financial engineering studies of a bid or ask tax?

Has anyone in the quantitative finance or financial engineering community studied the effects of a bid or ask tax with actual or simulated data? If so, what were the quantitative results or ...
7
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1answer
2k views

What is an efficient data structure to model order book?

What is an efficient data structure to model order book of prices and quantities to ensure: constant look up iteration in order of prices retrieving best bid and ask in constant time fast quantity ...
7
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1answer
356 views

Price functions based on order book events

Assume some equity traded on a given exchange based on an electronic limit open-order book $B$ that makes sequential updates as a function of time $t$. What are "natural" or common price functions $P: ...
7
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1answer
221 views

Alternative liquidity measures

I'm going to write the MSc thesis on flight-to-liquidity phenomenon in stock markets and I'm interested in liquidity measures other than Amihud or bid-ask spread. What are some other popular measures ...
6
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6answers
485 views

Book on market microstructure

Can I get some recommendations for a book on market microstructure? I'm not looking for some author's questionable methods for trading, I'm just looking for a book that provides me with facts about ...
6
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6answers
7k views

How to calculate historical intraday volatility?

Sorry for what must be a beginner question, but when I went to write code I realized I didn't understand exactly how historical volatility, or statistical volatility, is defined. Wikipedia tells me ...
6
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3answers
684 views

What is the impact of high-frequency trading on market depth, liquidity, and volatility?

On the surface, bid-ask spreads are far more narrow than even several years ago. However, during periods of financial stress liquidity seems to vanish. Also, the increasing amount of fragmentation ...
6
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1answer
109 views

How do you calibrate a poisson arrival rate process?

Many papers in the microstructure literature assume an order arrival rate of the form $\lambda^a(\delta) = \lambda^b(\delta) = Ae^{-k\delta}$ That is, an order that's placed $\delta$ away from the ...
6
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1answer
179 views

Estimate price movement per unit of volume for daily data

I'm working on backtesting a number of stock trading strategies and need to estimate how much the execution price will likely deviate from the historical close price for that asset using daily data; ...
6
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0answers
322 views

What are modern algorithms for trade classification?

When dealing with trade data, for example from TAQ, a common problem is that of determining whether a trade was a buy or a sell. The most commonly used classifier is the Lee-Ready algorithm (Inferring ...
5
votes
4answers
700 views

Does HFT make sense in a pro-rata market?

If orders are filled pro rata, is there still incentive to engage in HFT? Because pro rata nullifies the time precedence rule, my intuition is no, but I figure there could be other aspects to it I'm ...
5
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2answers
475 views

What are common methods for modeling intraday trading volume?

What are the most common ways to model intraday trading volume, particularly for futures contracts? There are obviously a number of seasonal-type factors, like roll, economic news releases, time of ...
5
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2answers
332 views

Recover full tick data from missing tick data

Due to some economics/regime problem, I can only have access to non full-tick data from an exchange. To make the problem precise, a full tick data $X$ is a series of $(t_i,p_i,v_i)$ for $0 \leq i ...
5
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2answers
322 views

How to use a realized kernel?

I've read that realized kernels are the thing to use for calculating daily volatility from high-frequency data. So I've got minute data, how do I actually use such a kernel? Will it give me minute-ly ...
5
votes
4answers
2k views

Analyzing tick data

What are some of the commonly used techniques to analyze tick data? I am looking at tick data to see how the quotes/ mid-price evolves due to certain events in the market. Since tick data is ...
5
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0answers
231 views

What good papers of short term (<30 seconds) volatility estimation

I am looking for good papers of short term (<30 sec) volatility estimation AND short term volatility forecasting. Do you have something in mind ?
5
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1answer
371 views

Market making in thinly traded assets

Could anyone suggest some literature or have any practical advice for marking a market in thinly traded assets with the following characteristics: 0-10 trades per day. Open limit-order book with 0-5 ...
4
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2answers
208 views

Market order quantity greater than quantity of the inside quote at the exchange

If I send a market order to an exchange with quantity greater than the quantity of the inside quote at this exchange, and if another exchange has quantity to fill the residual portion at NBBO, will my ...
4
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1answer
1k views

how do we estimate position of our order in order book?

how would you estimate your order in the exchange order book? The order of order events and acks is not deterministic or guaranteed. How could you write an algo to estimate accurately your position in ...
4
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1answer
151 views

Growth of Order Book size during day

I am trying to find market-structure research on how the size / depth of the order book changes during the day for equities. I would expect it to get deeper and deeper and bigger and bigger ...
4
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1answer
159 views

When does the Epps effect start?

Wikipedia defines the Epps effect as follows: In econometrics and time series analysis, the Epps effect, named after T. W. Epps, is the phenomenon that the empirical correlation between the returns ...
3
votes
2answers
710 views

Position management and market-making techniques

Suppose, there is a HF strategy (agent) that is based on order book microstructure, and it is able to make good executions locally. More formally, in average its execution price is better than asset ...
3
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2answers
147 views

FIX/FAST packet analyzer

I have a network dump of market data in the FIX/FAST format (transported over UDP). Are there standard pieces of software (similar to Wireshark) that will parse and allow for inspection of the ...
2
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0answers
151 views

Microstructure effects for a market maker? [closed]

When building a market maker that rests limits orders on both sides of the book, what microstructure effects should we be looking at to price those orders? I’m targeting liquid futures markets, and ...
1
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1answer
169 views

Looking for analysis of NASDAQ suit?

I may have every particular detail of this wrong, including the exchange, but years ago, maybe as long as 20, there was a successful suit against NASDAQ based on research by academics showing their ...
1
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1answer
123 views

Liquidity seeking algorithms open source implementation

Are there any free online liquidity seeking algorithms? Possible an open source implementation? Not looking for anything state-of-the-art, but just to get an idea how they work.
1
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1answer
87 views

Is there a difference between crossing network and ECN

Is there a difference between a crossing network and an ECN? The wikipedia page for Crossing Network says that ECN is a type of crossing network. But crossing network has the smell of a semi-legal ...
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1answer
63 views

How does a cross trade pose a problem to the retail investor

How does a cross trade pose a disadvantage to the retail client. In this explanation It says: ...
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2answers
162 views

Fundamental reasons for the stock price change

Let us start from the old times, where markets were less liquid. Suppose I hold some stocks of the company XYZ and I want to sell them. Why shall I expect that their price can rise in the next quarter ...
0
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1answer
67 views

Change of order size

For example I am put a limit order of size 10 at top bid. moments later, my algorithm detects we should have size of 50 here. So we request a update on this order. My question is, will we lose the ...
0
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1answer
112 views

What is the realized volatility's estimation error?

Given an estimation procedure and real data, how would one compute the mean squared error? What value represents the "true" realized volatility in the case of calculating the Mean Squared Error in ...
0
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0answers
28 views

full tick and retail tick data feed difference

Full tick institutional data feed like elektron from reuters, how is it different from retail tick data feed & which charting softwares work with elektron data feed
0
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0answers
42 views

Java limitbook implementation? [duplicate]

I am looking to create my own front-end. What is the best data structure/java swing object to represent a limit order book? currently I am using two JTables and loading best bid and qty data from a ...