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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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How to interpret and store Level 1 stream data

I am very new to market data. Currently I am collecting top level 1 market data through interactive brokers api by subscribing to few tickers. I wanted to understand how to interpret the data. for ...
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153 views

Market impact, why square root?

The standard method of market impact is the square-root formula \begin{equation} \Delta P = c \cdot\sigma \cdot \sqrt{\frac{n}{\nu}} \end{equation} where $\Delta P$ is the price change from executing ...
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Comparison of normalization methods on market returns

I am looking to use a multi-factor model to make target-return predictions. Since the factor-returns come from different scales I need to normalize first. There are different ways to normalize ...
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39 views

Option order imbalance

Currently studying the paper: HU, Jianfeng. Does Option Trading Convey Stock Price Information?. (2014). Journal of Financial Economics. 111, (3), 625-645. Research Collection Lee Kong Chian School ...
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1answer
98 views

Finding parameters of a function for optimal market making with real data

I am reading this paper and trying to apply it with real data to do some simulations. I will use realtime order book & market order data that I will receive from the exchange. This is a sample ...
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25 views

How to debit user balance on market buy order?

Suppose that the user's balance is debited before his order is sent to the matching engine. The debiting is done to ensure that the user has sufficient balance and that he is not submitting orders ...
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What's the slowest frequency over which bid-ask bounce effect are observed?

I am using minute-by-minute stock prices series constructed on transaction data. The stocks are among the most highly liquid. I observe that the price series contain negative autocorrelation. I ...
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45 views

Has work been done on PID controllers for optimal trading?

Commonly, stochastic control is the basis for optimal trading (either in execution or market making). Has any research been done (or why not, if none) as to proportional-integral-derivative ...
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80 views

Market Maker portfolio management

I am interested in articles/strategies related to portfolio and inventory management for Market Maker and to management of order cancellation, updates of order, etc. Most of the strategies from ...
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29 views

Predicting midprice of FX pair increases in exchange Y if it increases in exchange X

I want to make a predictive model to see if the mid-price of P (FX Pair) increases in Exchange X that P will increase in Exchange Y within n seconds with a certain statistical confidence. Exchange X ...
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29 views

How do orders outside of the market clearing level affect price?

Let's say a trader is trading in a LOB and he places an order deep in the book. How close can he be to the touch until if he has temporary or even permanent price impact? This assumes he cancels after ...
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2answers
143 views

Seeking papers that deal with stock market analysis

I am sure there are a lot of papers that are related to stock market analysis.. but I haven't been able to find ones that fit my needs most. I want to read papers, replicate their analysis, and use ...
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The noise trader explanation of concave market impact

In "How markets slowly digest changes in supply and demand" by JP Bouchaud, JD Farmer and F Lilo the authors asserts: Noise trader models have been proposed to explain why market impact is a ...
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2answers
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When buying an ADR, how is the depositary for the purchased ADR determined?

I'd imagine that for a given underlying foreign security, it's possible for there to be multiple U.S.-based banks, each of which acts as a custodian/depositary for ADRs of that foreign security. In ...
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148 views

Papers and books related to “Forex” market microstructure

There are lots of papers and books on this topics but haven't seen much specific to forex markets nowadays. Any recommendation on recent papers or books?
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86 views

How much of the insider's private information is incorporated into prices in Kyle's single auction equilibrium model?

While desribing properties of the single auction equilibrium defined by theorem 1 in "Continuous Auctions and Insider Trading" A. Kyle conjectured that one-half of the insider's private ...
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4answers
206 views

How frequently do market makers cancel orders?

It is modeled that a market maker will post a limit order for a period of time and will maintain that order until the set period of time expires, or the order is filled, and then he will provide a new ...
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1answer
388 views

Backtesting Market Making Strategy or Microstructure Strategy

How does one backtest either a market making strategy or microstructure-based strategy? I'd imagine that one way would be to record order book states over time and then insert the orders, but it seems ...
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1answer
115 views

Settlement of VIX derivatives

Currently reading the paper of John M. Griffin and Amin Shams "Manipulation in the VIX?". My questions has to do with settlement of VIX derivatives (options and futures on VIX). The paper states that ...
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Trade impact on mid price

Using historical data I would like to try and predict what impact (if any) a trade will have on the mid price. I assume that generally buy trades will increase the mid price and reversily sell ...
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1answer
71 views

If I exercise an option, how is it determined who gets assigned?

Does the option carry with it some identifying information about who wrote it, or is the person who gets assigned determined some other way?
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83 views

Can any tell me how the VIX spike in Feb 2018, might have been caused my manipulation of $SPX options or VX Futures? [closed]

Looking for ways to back track evidence of manipulation in the trading or SPX options, ES Futures, or VX Futures to cause the spike that destroyed the vol ETFs (XIV, and SVXY), and caused small ...
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2answers
277 views

Literature on FX market-maker hedging strategies

Specifically, FX market making. I am not exactly looking for market-making strategies, but rather when once a market-maker has assumed a net position in a currency spot trading market, what are some ...
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1answer
405 views

Finding parameters of an utility function in a market making strategy to apply it in practice

I am reading this paper below about optimal bid-ask spread in a market making strategy. It finds an approximation for optimal solution, but I cannot understand how it's practice to set the parameters ...
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2answers
41 views

Constraints on bid price in markets

This is a very dumb question that I ask, but I think it's an important one. What kind of rules exist to prevent market manipulation? For example, suppose if the current stock price is 50 dollars per ...
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1answer
74 views

Metrics for Measuring Intraday Activity

Using intraday data, are there certain measures that exist for measuring the "activity" of a particular instrument. By intraday data I mean, all changes to the limit order book (trades, adds, cancels, ...
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2answers
128 views

inverse of stock price [closed]

Is there any intuition to use 1/P (inverse of the stock price) as a factor of volatility? $VOLT = \beta_1 * \frac{1}{P} + Res$ P.S: In a research paper, I found it's related to the market micro-...
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371 views

How does one calibrate lambda in a Avellaneda-Stoikov market making problem?

In market making models derived originally from Avellaneda-Stoikov, there is a function lambda that represents the arrival rate of orders. In its prodigy, there are different representations of lambda,...
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106 views

Why is limit price order been executed with a worse price?

recently I was trying to analysis the message data from NASDAQ ITCH data, but I find a problem with a type of message called "Executed With Price Message". For example, first there is an Add Order ...
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282 views

How do you actually solve a stochastic HJB equation in practice?

I've read a number of recent papers on market making. Nearly all of the more recent papers focus on defining the problem in terms of a state and action space, deriving the relevant HJB equations and ...
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1answer
70 views

tick size for US securities

I there a source or way from which I can find out the minimum tick size for US securities at any point in time from 1970 until today? I know that securities above \$1 have \$0.01 tick while those ...
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1answer
132 views

What makes open-outcry preferable to electronic trading and what are its consequences?

I recently visited the trading floor of CBOE where especially the pits of SPX and VIX are relatively crowded and open outcry is still performed. I was surprised to hear that the traded volume is non ...
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1answer
329 views

Trade price in high-frequency TAQ data

I am looking at AAPL TAQ high-frequency trade data from NYSE and I have noticed that at several places the trade price (defined in Daily TAQ Client Specification as: "The Trade Price is the monetary ...
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1answer
101 views

history of market microstructure

I am doing an assignment which requires me to review changes in market microstructure across countries over the pass 20 years. SO I would like to get a timeline/implementation dates of market ...
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90 views

How do I estimate opening call auction order book for equities?

The opening call auction crossing order book is partially sealed, i.e. only the specialist can see quotes. Is there a stock exchange where this data is available later to simulate the matching ...
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1answer
63 views

ITCH feed, price executed at different to original order?

I am parsing an ITCH feed (Nasdaq) and I received an Add message (A) for 100@105.2 on the Ask. Later I receive an Order Executed message (E), indicating 5 lots of the above order had been filled. No ...
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1answer
81 views

Cost of liquidation

In the text book on Risk Management by John Hull, The cost of liquidation is defined as one half of spread between bid price and ask price. Investopedia justifies the one half factor by saying that ...
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495 views

Gamma Imbalance / Exposure

I am currently writing my thesis about the lack of volatility / changing market structure we see nowadays on the financial market. I believe an important factor in this development is the delta-...
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1answer
248 views

historical data on orders and executions

I've implemented a simple trading system that gets orders with FIX, manage them in limit order books, calculate relative prices and, execute order book, runs multiple sessions (auctions and normal) by ...
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1answer
1k views

How to measure market depth?

Is there a consensus on a formula for measuring the market depth of a book at a given point in time? Or a possible proxy for this measurement? I see so many articles / people discussing market depth ...
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2answers
90 views

What determines trading volumes of the same stock at different trading platforms?

What determines trading volumes of the same stock at different trading venues (exchanges/ECNs/dark pools)? It seems that they vary significantly.
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4answers
428 views

Market making with resting orders?

I'm still confused on how to provide liquidity on the forex market using passive or resting orders and get the spread from that (selling at ask and buying from bid) And what's the dynamics on the LOB ...
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2answers
105 views

Understanding the downsides in of trading in smaller exchange

I've been algo trading a small portfolio within NYSE for about a year now. And while do end up running positive P/L results are far from spectacular. I ran a test using my strategy in OMX Stockholm ...
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1answer
56 views

Fees from market order routing in different fee-strucuted exchanges

Let's have two exchanges A and B. Exchange A has maker-taker fee structure, while exchange B has taker-maker fee structure. What happens when a broker routes market order to an exchange B at the time ...
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49 views

Is there any research available on profile of the market participants in different markets?

I know markets are by large anonymous, is there any current research or data sources publicly available across different exchanges and/or investment instruments on the profiles of their investors? I ...
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1answer
125 views

How do market participants know intentions of other players

I'm reading a paper on order anticipation strategy and came across this line in the paper: We assume that all model parameters, including n and ...
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1answer
165 views

How to identify a change in market dynamics?

As a beginner, I'm learning how to make good trading strategies. One of the things to consider for reliable backtesting is the Minimum Backtest Length, whose selection is basically a tradeoff: Too ...
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2answers
140 views

Liqudity and Blockchains: How does settlement time affect real trading?

I am not sure, whether this question is on-topic here, but it is microstructure related, is of concern to practitioners and addresses a question which is often debated in academia. When it comes to ...
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1answer
105 views

Is there evidence that delta-hedging of large investors affects markets?

I would expect that many traders hedge their exposure before market closing based on their positions. In order to determine the timing of readjustment, there should probably two channels affect the ...