Questions tagged [market-microstructure]

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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In what "time" should we work in when handling high frequency data with latency?

I am wanting to know if there is any standard approach for the following situation: We receive trade and order book data over a connection from an exchange and are interested in downsampling this into ...
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Factor investing for traders

Can factor investing be used for short term trading ? If yes how macroeconomic and style will be different from long term ?
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SDP and riskless profit

I am trying to understand the Single Dealer Platform model that a lot of banks and prop shop are launching. So I am not sure to understand really how a Single Dealer Platform works. From what I ...
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Last look window in us treasuries

Last look window is always discussed for Fx but I was wondering if people analyzed also its effect in other Asset Classes like US treasuries? Because I think that the holding time of a quote in US ...
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Tiering value in RFQ

I was wondering what are typical strategies employed by market making firms to calculate the tiering value of each client. So when a client create an RFQ, the market maker after calculating the BID/...
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What are some quantitative approaches to figure out Flow Based Alphas on extremely small lookout periods and does 'flow' play a significant role?

I was pondering over the dynamics of the Market Microstructure trying to couple it with some directional flow based alphas but for extremely small look out periods. Does it even make sense to go for ...
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Optimal Multi-Level Quoting for Market Making

I have been studying limit order books with focus on the optimal quoting problem for market makers. I have read the Avellaneda-Stoikov model and the subsequent developments. However I am unable to ...
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Implementing Queue Reactive Model using L2 data

I've been reading through the Queue Reactive Model paper, and wanted to implement it in Python. I have clean L2 data in the form below (over 450k events for one stock one day), with a timestamp, the ...
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Is it possible to exchange one stock for another without cash as an intermediary?

According to my research, it is possible to exchange one stock for another without selling to cash and then buying the other. The process is known as a "stock-for-stock" or "share-for-...
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negligibility of the increments of the efficient price process with respect to the first differences of the noise sequence

In high-frequency data the price process Y is contaminated by noise . We do not observe $X_t$ but the process $Y_t = X_t +u_t$ where $X_t$ is the efficient price process and $u_t$ is the ...
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dependence between trading instants and price in market microstructure

Can someone suggests readings regarding the dependence between sampling schemes and prices at which they are sampled in high frequencies context ? Is there a relationship between prices and times?
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Guidance on Execution Algo Passive order placer?

Could someone help with any relevant literature about building an Execution Algo and things to consider and keep in mind for optimal passive order placements? There are basic algos like TWAP/VWAP/POV ...
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How to model the imbalance to predict in different timeframes?

As widely shown in this forum and in the literature, the order book imbalance is empirically a good predictor of the market move. However, even though the calculation of the imbalance is very straight ...
sandstorm111's user avatar
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the pre-averaging function in Jacod et al

In the paper of jacod et al the authors used the pre-averaging function to deal with microstructure noise. They suggest the easiest function which is $$\bar{Z_i} = \frac{1}{kn} \left( \sum_{j=kn/2}^{...
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Potential problems with trying to apply reinforcement learning to algorithmic trading

I have been attempting to develop an algorithmic trading agent for a single asset pair and upon researching, it seems as if, in theory, reinforcement learning would be a natural way to approach this ...
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Reference for Aggregated Temporary Price Impact

I am wondering if someone knows relevant literature on the joint temporary price impact. The temporary price impact here refers to the difference between the best ask/bid price and transaction price ...
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Is the impact of "small" orders on market dynamics more than is commonly assumed?

When modeling the dynamics of a market, a common assumption is that the impact of a "small" (e.g. very low percentage of daily traded volume) order on current and future observations of the ...
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How to solve for Kyle's $\lambda$ that emerges in the demand functions of the informed and uninformed traders in the $1989$ model?

I will restate here a problem that I am finding a bit difficult to solve and I have already posted here. I summarized the problem as it follows. From Albert S. Kyle's 1989 model. Suppose that the are ...
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Gueant–Lehalle–Fernandez-Tapia formulas for varying volatility

There are formulas proposed by Gueant–Lehalle–Fernandez-Tapia related to the optimal bid and ask in market-making models (Optimal Market Making by Gueant or The Financial Mathematics of Market ...
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How does one calibrate lambda in a Avellaneda-Stoikov market making problem leading to Gueant-Lehalle-Tapia model?

The title is similar to that of the question I was referred to here which has been answered by Lehalle himself! I'm trying to implement the Gueant-Lehalle-Tapia model which is how I got to this answer ...
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Latency (market updates) and link to market efficiency

In the book by Lehalle and laruelle - "market microstructure in practice" - "The trading activity of HFT updates limit orderbooks at a higher rate than the round trip for any non-...
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Non-zero real-valued function continuous and piecewise $C^1$ that vanishes outside (0,1) with piecewise Lipschitz derivative

In this paper the authors to overcome the presence of microstructure noise which "contaminates" the ito-semimartingale in high-frequency data uses the idea of pre-averaging. For an ...
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modelling time series using semi-martingale process

During this week lecture my professor said that the semimartingale( brownian motion contamined by noise) is a model in reduced form because we do not specify the dynamic which leads to price ...
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price discreteness in stock market

can you explain what is meant by 'price discreteness' in stock markets? I happened to read this term in some papers but I don't know how to define it In the paper "Do Price Discreteness and ...
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Trade Impulse signal

https://blog.headlandstech.com/2017/08/03/quantitative-trading-summary/ In reference to the link, under Market Microstructure Signals, the so called "Trade Impulse" signal was mentioned . ...
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Multi level micro price

Typical micro price formula uses the top of book depth (i.e. level 1 depth): Microprice = (BidSize x AskPrice + AskSize x BidPrice) / (BidSize + AskSize) But how does one actually include more depth ...
emptydoubleu's user avatar
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Queue Reactive Model for large spread assets

Im working on the implementation of the Queue Reactive Model by Lehalle (https://arxiv.org/pdf/1312.0563.pdf), but I have encountered some implementation problems for my specific assets. First, the ...
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Lopez de Prado Advances in Financial Machine Learning- entropy for adverse selection

In chapter 18: Entropy Features, Lopez de Prado discusses how entropy can be used to estimate adverse selection. He suggests a method where order imbalance is mapped to quantiles and entropy is ...
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Estimate of realized spread

Given a dataset with second level information about open, high, low, close, volume and vwap of a stock - how can one estimate the realized spread - a simple estimate could be (high - low)- but can one ...
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Is there a common way that level 2 and time & sales data are analyzed together?

Let's say that for a single asset, we have a data stream from which we receive both level 2 order book updates (price level/quantity updates) as well as time & sales updates (grouped recent trades)...
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What happened when market status change from pre-market trading hours to standard trading hours?

Now we can place orders in pre-market trading hours, from 4 am to 9:30 am. And then we go into standard trading hours, 9:30 am to 4:30 pm. But I wonder then when will the Market Order Auction happen? ...
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Is there a commonly accepted way to leverage the granularity of high frequency data while working within the constraints of lower frequencies?

Apologies if this is not the correct forum for this question. Access to high frequency data (trade data, quote data, limit order book updates, etc.) is currently relatively easy through various public ...
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Order Flow Imbalance calculation

I was wondering if anyone could help me understand Figure 2 Rama Cont's Price Impact paper? It is on arxiv as well. In Figure 2 (screen from arxiv version), they demonstrate how to derive change in ...
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Market impact power law fitting confusion

In many market impact papers such as "Anomalous price impact and the critical nature of liquidity in financial markets" by Tóth et al (2018), there is a standard power-law relation in the ...
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Simulation of SFGK Model for limit order books [closed]

am trying to simulate the SFGK model from the paper "Statistical theory of the Continuous Double Auction", Eric Smith, J. Doyne Farmer, Laszlo Gillemot and Supriya Krishnamurthy [1]. The ...
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Dealing with the inventory risk: solution with drift

I'm implementing the solution with drift from "Dealing with the inventory risk" from Gueant, Lehalle and Tapia. I'm using the link https://arxiv.org/pdf/1105.3115.pdf as reference. I can ...
sandstorm111's user avatar
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Screening Market Order - Limit Order Books and Modeling

I am reading the paper "A statistical theory of continuous double auction". The paper can be found at, https://www.santafe.edu/research/results/working-papers/statistical-theory-of-the-...
Ramesh Kadambi's user avatar
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Transform non-linear HJB PDE into system of linear ODEs [closed]

I am reading this market making paper, and am trying to understand the transformation presented on page 6. A good resource for background relevant to the transformation is this other market-making ...
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Relationship between order size and spread for direct market order

Suppose that I am placing a market order directly in the order book of an exchange. For market orders, it seems quite clear that larger orders obtain larger spreads due to the fact that - without loss ...
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Dealing with the Inventory Risk (Lehalle, Gueant, Tapia): Delta T parameter and actual order duration

Reference paper: Dealing with the Inventory Risk (Lehalle, Gueant, Tapia) ∆T is the time horizon over which you compute the intensities of aggressive orders (you get the k and A parameters) I have two ...
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Can I extend the private information model of Kyle in in a continuous analogue, e.g. the Ornstein–Uhlenbeck process?

Taking into account an old post of maths.stackexchange, I recall the following: On the one hand, we know that the Ornstein–Uhlenbeck process can also be considered as the continuous-time analogue of ...
Oliver Queen's user avatar
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Clarification on the Quote Rule and the Limit Order Display Rule

I am currently reading Market Liquidity by Foucault, Pagano and Röell. In chapter one they describe the limit order book markets and dealer markets. I am confused about two rules that so called "...
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What are the parameters’ units in the Avellaneda and Stoikov model?

I'm studying a draft of the paper “Dealing with the Inventory Risk: A solution to the market making problem” by Guéant et al from July 2012. According to the paper, the closed form solution to the ...
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Do MarketOnClose orders cross a bid-ask spread?

If I'm entering into a Market order to buy (e.g., for a share of SPY), it's easy to see the spread that I am crossing: I can compare the "mid" average of the NBBO to the ask, and that's the ...
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What is milliprice (it seems to be an extension of microprice) [closed]

For computing the expected future price (on a small time scale) one can use micro price which is defined here. The definition of micro-price is ...
SatoshiReport's user avatar
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Understanding and calculating all the trading fees

I'm trying to make a simple script that calculates fees (commission, regulatory, exchange and others). Taking Fee Table from IBKR as an example I have a few questions: Is "Value of Aggregate ...
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Order Book during trade halts

I noticed this weird structure of the order book during trade halt of $GCT, August 19th 2022. Stock was halted at the time. Could someone explain why bid is higher than ask? Is this just a bug in the ...
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How to solve numerically the IDE of GUILBAUD & PHAM model?

By the Guilbaud & Pham model (Optimal high frequency trading with limit and market orders, 2011), the authors said that integro-differential-equation (IDE) can be easily solved by numerical method....
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Can we spot informed trading from market prices?

Is there any consensus on what is the price behavior in presence of informed trading? Can we observe in retrospect any anomaly in the time series of prices of realized transactions, or transformations ...
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How can a top-of-the book market maker protect itself from exploiting?

Let's consider there is an instrument N traded on a single venue (centralized anonymous limit orderbook). Let's say that most taker orders are tiny, therefore the one who stays at the best bid/offer ...
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