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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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 ...
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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 ...
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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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Computing market impact from the order book?

Market impact as I understand it measure the difference in price between the first share that is bought and the last share that is bought when an buy order of N shares is submitted to the exchange. (...
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Options market: quote-driven or order-driven?

In my understanding: bonds, currencies, and commodities (cash, not derivatives) are traded in a quote driven market with a market maker who "will either fill your order from its inventory or ...
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Level 1 NBBO - what is going on?

Looking at some level 1 quotes data (QRM) on the bloomberg terminal for a DAX index option. Why is there always a 1 lot quote for 450 just popping in every other tick? Seems like there is a single MM ...
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Market impact estimation [duplicate]

Can anyone provide us with an empirical example (in Python) of market impact visualization, methods of its estimation (in the framework of a parametric model for impact functions) ?
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A question about the Grossman-Miller Market Making Model

I don't have any solid background in finance, but I have a strong mathematics and physics background. I am reading Algorithmic and high-frequency trading from A.Cartea, S.Jaimungal and J.Penalva, CUP (...
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Comparison between Effective Bid-Ask spreads

I understood that given two listed assets, the one with the lower effective spread is more liquid, and if one has effective spread lower than the quoted one, it means there has been a price ...
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Lower volatility corresponds to higher market efficiency?

What are the general ideas about volatility? It is generally said that volatility signifies risk, which reduces liquidity and thus efficiency. Is it actually so? Can't volatility be associated also to ...
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Exchange vs Order-Driven vs Quote -Driven

I have never understood the implications of a quote or order-driven market. When I look up securities on google in a way to see their prices, is that price the price of the exchange? the price of a ...
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Downloaded data is quote-driven or order-driven?

I downloaded data from Refinitiv Datastream (But I think that you get the same data from Bloomberg) to write my thesis. I downloaded prices and volumes. I have a crucial question now: Are the prices ...
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Market Impact Estimation: Choice of Parameters and Scaling of Inputs

The standard market-impact model used is the square-root (or more generally speaking, power law) model that states that the temporary impact of a trade is given by: $$ I(V) = \sigma\cdot\alpha \left(\...
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Backtesting using microstructure (orderbook) data

I would like to use tick data (especially order book data; but also trade) to backtest my strategies, can anyone offer a recommendation? Personally, I've written my own backtesting scripts couple of ...
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Off exchange market maker

I found this picture on SEC of how brokerages handle orders from its customers. Isn’t market maker on the pic essentially called OTC market maker, or wholesaler, or simply dealer? And aren’t they not ...
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Adapted Roll measure implementation

I'm currently trying to implement the roll measure adapted by Easley et al. (2020, p. 22). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3345183 The adapted roll measure is given by the eq below....
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Adverse selection and market makers

What are practical examples of adverse selection market makers have to deal with?? I’ve read books but couldn’t really understand the concepts…
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Game theoretic description of stock market

I read the book "Theory of Games and Economic Behavior" by John von Neumann and Oskar Morgenstern. I think that stock market may be described by game theory. But here are the problems: ...
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Trades, quotes, and Prices: is high frequency noise scalable by price?

In Section 2.1.3 (page 27) of Trades, Quotes, and Prices by J-P Bouchaud et al., the authors introduce $\eta_t$, an uncorrelated noise term to Bachelier's First Law. In equation (2.13), the authors ...
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Do IOC Orders Stay on the Order Book for Any Period of Time

I'm confused on whether or not an IOC (Immediate Or Cancel) order will stay on the order book for any period of time. For example, if I place an IOC buy limit order at \$1.00 and the ask price is $1....
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How often do maker orders arrive together with matching taker orders on modern exchanges?

Table below shows messages that were recently collected from the Full channel of the websocket feed of the well-known cryptocurrency exchange: The full channel provides real-time updates on orders ...
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Mechanism design in continuous time models

I am interested in mechanism design and information design. Is there any part of the literature in financial mathematics that is associated with them. I mean could we bring somehow these topics under ...
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Methods of predicting liquidity consumption

Let's consider limit order book for a certain stock. By liquidity consumers i mean traders that buy/sell shares using market orders. What are the known methods/models for predicting total amount of ...
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How to merge ML-based $\alpha$-signal with stochastic control approach?

I'm having a hypothetical situation where I have a set of ML-based alpha signals $\{\alpha_i\}_{i=1}^{N}$ that describe a different states of order book - imbalances, order flow, spread properties etc....
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How do better informed traders apply their advantage over the others?

Let's suppose that some trader knows something, that most of other market participants don't know. That knowledge may be directly related to the stock market e.g. number of open long positions below/...
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At what time step the microstructure noise start to kick in?

When looking for papers on-line I often find things designed specifically to deal with micro-structure noise. I spent some time trying to understand / implement / test them for results that vary ...
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Stochastic equation in "High Frequency Trading in LoB, Sasha Stoikov and Marco Avellaneda"

I am reading paper High-frequency trading in a limit order book by Marco Avellaneda and Sasha Stoikov. Please help me to understand how they rewritten and obtained function $$ v(x,s,q,t)= -\exp(-{\...
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What's the best way to determine if trade was buyer (seller) initiated, having access to bid/ask/last quotes?

In this question, suggestions on algorithms from Lee and Ready and Pan and Poteshman address ways to determine trade side without access to bid/ask quotes. The streaming data I have access to yields ...
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Known methods for big order detection

I have an access to the order book from stock market and i am interested in finding an anomalous behaviour. What are the known methods, algorithms for detecting big orders or other activities of ...
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In Avellaneda-Stoikov market making, what is the difference between "reservation prices" and "optimal bid ask quotes"?

Question What is the difference between "reservation price" and "optimal bid and ask quotes"? Are they the same thing? (1) Reservaton price In the paper High-frequency trading ...
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Assess forecasting performance of model in presence of bid-ask bounce

I have a forecasting model for 1-minute asset returns $y_t$ derived from trade data. (The assets are not very liquid.) The predictors of the model include the lagged target variable $y_{t-1}$, which ...
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How is forex market Quote-Driven?

I am new to the field, and trying to understand structure of spot currency market. As it is stated here, Quote-Driven Market ... only displays the bid and asks offers for a security from designated ...
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Stochastic optimization and mean field games : textbooks

Which textbooks and online courses would you recommend to learn : stochastic optimization mean field games applied to quantitative finance. My goal would be to read research articles like the ones ...
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What does a electronic dealer track in a RFQ market?

If you have mid price for rfq market in fixed income. What is the internal order book tracking at a bank? Customers dont place limit orders or do they? There arent any other market makers on your ...
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Red Black Trees for Limit Order Book

Why do people suggest using red black trees/balanced binary trees for the levels in a limit order book? Why are they algorithmically ideal?
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What are the proper ways to do order book downsampling?

I have an access to the order book dataset, which was sampled with resolution that is too high for my sandbox experiments with it. Because of that, I was wondering, what would be the correct way to ...
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To what degree is volume correlated with price impact?

There is question from 2017 here but the answer given doesn't really go into any detail. How correlated is volume with price impact? Especially with regard to wash trading; For example, wash trading ...
4 votes
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Using market microstructure and exchange-specific knowledge to design trading strategies

I stumbled upon this job offer for Microstructure Performance Researcher and I didn't understand the parts below. (https://www.optiver.com/working-at-optiver/career-opportunities/2551339/) The parts ...
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What's the optimal way to size a limit order?

Say Bob wants to buy \$30 million worth of APPL stock at a price of \$130. He decides to use a limit order. But posting a $30 million limit order would drive the price up and prevent him from being ...
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Market impact in stress

I am trying to model the price impact in stress for a period of several days. Specifically, I am looking for a function/model that predicts the price movement ...
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How do you detect order execution algorithms?

Most large orders nowadays are done through TWAP or VWAP based order execution. For example, if Alice wants to sell $60 million in EURUSD she will break up her order into 50,000 tiny orders and then ...
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ETF Market Making - Locking profits via hedging

I am interested in deeply understanding the way ETF market makers operate to profit. I already know that market makers profit from buying at the bid price and selling at the ask price, and I am also ...
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Limit order book modeling based on computational statistics

Is someone aware of publications that try to model limit order book (and market mircostructure) in general using CS tools (such as online machine learning, game theory ecc...) and not stochastic ...
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