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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 how order books, closing auctions, order execution, etc. really works.

I'm also NOT looking for the type of depth that a HFT would be interested in. I know that whole books can be written about the various plumbing of a particular exchange. I'm simply looking for a general overview of how exchanges work.

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I've not yet read it, but Lehalle's recent book is bound to be a goldmine of good micro-structure bits and pieces. Market Microstructure in Practice

EDIT: I'm reading the book now, so far it's quite good.

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    $\begingroup$ +1 for referring to the work of the respected QF user @lehalle :) $\endgroup$ – olaker Jan 10 '14 at 18:54
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My two favorites books on microstructure are:

Recently, three new books have been published:

On the theoretical (economical) aspect, you have two good books:

In terms of skills, you need to be able to learn statistics, (stochastic) control and optimization. That for I would consider to read:

  • Meucci's Risk and Asset Allocation - of course it is not written explicitly for microstructure, but if I had to learn from scratch multivariate statistics for financial markets, I will definitely use this one.
  • you should take a book on stochastic control, take the one you want, but frankly my favorite is Soner's Controlled Markov Processes and Viscosity Solutions. It may be too theoretical for what you need to control a trading algorithm, but it may be the occasion to read a good book on control.
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  • $\begingroup$ OK. Now you made me curious. Will check out your book... $\endgroup$ – vanguard2k Jan 21 '14 at 12:32
  • $\begingroup$ funny that Louis Marascio's answer on my book scored more points than my own answer, even if the later included my book... ;{)} $\endgroup$ – lehalle Mar 9 '15 at 20:10
  • $\begingroup$ Strange indeed as your answer is more in depth (as far as the first four references are concerned and you are an author of the book suggested. :-) $\endgroup$ – vanguard2k Mar 10 '15 at 7:37
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Classical book on market microstructure is: Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris. It's a bit outdated (2002) and missing few recent market developments like dark pools etc. but the way it currently is it's already highly recommended reading.

Personally I'm waiting for the next edition of the same book, and surely many others waiting as well (though not sure it will ever be published, even so Larry Harris is still actively engaged in the industry and academy).

The current market microstructure - probably the best source would be academic papers, I'm not aware of recent good books on this topic.

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There is a lot of papers on the subject that tend to stay more up to date than the books (since there's new papers coming out all of the time)... of course no 1 paper will give you the depth of concepts you can take from a book like Harris' but, after reading that book, they can be very helpful for updating the concepts. :)

arxiv is IMHO the best source for such papers... these are a few that came out last year and were pretty interesting...

http://arxiv.org/pdf/1312.0563.pdf

http://arxiv.org/pdf/1312.0514.pdf

http://arxiv.org/pdf/1310.1103.pdf

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I'd go with either Anatoly Schmidt's Financial Markets and Trading or Joel Hasbrouck's Empirical Market Microstructure. Both have plenty of math, and that's pretty much required when talking about market microstructure.

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This one covers basics reasonably well: DMA

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  • $\begingroup$ This is quite HFT-oriented though... $\endgroup$ – SRKX Jan 10 '14 at 16:33
  • $\begingroup$ Out of curiosity, what's so HFT oriented there? $\endgroup$ – LazyCat Jan 10 '14 at 19:47

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