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.

Filter by
Sorted by
Tagged with
1
vote
1answer
72 views

How does a trader choose how to size his 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 ...
0
votes
1answer
69 views

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 ...
1
vote
0answers
73 views

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 ...
8
votes
2answers
316 views

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 ...
1
vote
2answers
207 views

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 ...
3
votes
1answer
272 views

What are some currently open problems in market microstructure

I've been reading up on market microstructure models and toyed around with them -- i.e., I got simulations for Roll (1984), Glosten-Milgrom (1985), Kyle (1985), Kyle (1985) with multiple periods. I am ...
2
votes
1answer
160 views

Imperfect Competition among Informed Traders - Back, Chao and Willard

The following assumptions are part of the paper of Back, Chao and Willard and I can not solve for the statistic that is denoted as $\phi$ in the sequel. I would be glad if anyone could help me. Below ...
0
votes
0answers
45 views

Price Impact Model - Permanent / Temporary

I have a price impact model which is linear with a temporary and permanent component of the following form : $PC = \frac{c \sigma Q}{ADV}$ (Permanent Impact) with $ADV$ the average daily volume and $...
0
votes
0answers
22 views

How is the following realized-price related quantity called?

Let's say we're given a stock $S$, and let's denote by $S_t$ the market price (the last price at which the stock was traded, generally not equal to the midprice) of stock $S$ at time $t$. Is there a ...
0
votes
1answer
62 views

What happened to direct access “electronic day trading” after 1998-2002?

I was looking through book catalogues and databases when I noticed something: most books about direct access "electronic day trading" for retail traders were published between 1998-2002, ...
1
vote
1answer
64 views

Pegged Orders Positioning

I have a strategy that involves being first in the order queue in a tight market where the tick can change from bid to ask or ask to bid by one tick. I am looking at pegged orders so when the bid ...
0
votes
2answers
181 views

Why do E-mini S&P 500 futures have small bid-ask spreads?

I noticed that E-mini S&P 500 futures (ES) typically trade with a very narrow bid-ask spread of 1 tick. What contributes to this small bid-ask spread? I can think of two reasons: Lots of active ...
2
votes
1answer
123 views

Are bid-ask spreads in options related to bid-ask spreads in their underlying?

If an underlying has a large bid-ask spread, does it mean that its options will have large bid-ask spreads too? Is there any relation between the bid-ask spreads of options and the bid-ask spreads of ...
0
votes
0answers
78 views

Differences between transaction types on the Euronext exchange (“Auction”, “Exchange Continuous”, “Retail Matching Facility”, etc.)

I was looking at the intraday transactions for securities listed on Euronext exchanges. Example 1 — Pharol (Euronext Lisbon: PHR): Example 2 — Aures Technologies (Euronext Paris: AURS): Notice the ...
0
votes
1answer
190 views

Can someone explain to me the square root law of market impact?

The square root law is shown here: Market impact, why square root? Let's say I want to execute 100 lots. But I have never executed before so I have no idea what n is historically. How would I ...
2
votes
1answer
155 views

Simulating Bid-Ask Spreads

I would like to examine the impact of the volatility on the transaction costs (Bid-ask spread). In my case I would like to examine this for power prices. However, I don't have access to actual order ...
0
votes
1answer
83 views

Feature engineering for mid-price prediction - quickly changing features

I'm training a fully-connected feed-forward neural network on HFT (limit order book) data to predict the midprice at timepoint $t+\Delta t$ (assuming that $t$ is the current moment, and $\Delta t$ is ...
1
vote
1answer
73 views

How do locked markets get resolved in a low-volume market?

Consider a low-volume exchange-traded security that sometimes sees no trading volume for days on end. Examples of such securities are some bonds, preferred shares, SPACs, and ETFs listed on the NYSE ...
2
votes
1answer
77 views

What would be the point of Roll (1984) on measuring the effective bid-ask spread?

If you look at the original paper of Roll (1984), he explains that part of the transaction costs borne out by investors would be the bid-ask spread and that it was "fraught with measurement ...
0
votes
0answers
36 views

Kyle-style models and empirical research

Kyle (1985) introduced a model of insider trading where an informed trader seeks to capitalize on their information by chosing the size of a market order. Of course, many variants thereof have been ...
3
votes
1answer
92 views

Equilibrium in the Kyle (1985) model

In his 1985 paper, Kyle presents 3 versions of the same model: a single period model, a multiple period model and the continuous time limit of the multiple period model. When he formalizes the ...
2
votes
0answers
100 views

Complexity of using balanced-tree to model order book

I have bene researching on the best data structure to implement a limit order book. Some of the most common implementations include arrays and balanced trees. This link has a good set of references. ...
2
votes
1answer
140 views

Estimating the spread of a market maker

If we have an order book and we assume that we know there is only one market maker, how can we determine exactly the spread of the market maker? What if there are more than one market makers?
-1
votes
1answer
83 views

How is market depth data useful

I was wondering how market depth data is useful if the orders which change the price would not be available . If we consider the orders which change the price , these are the orders where the bid on ...
0
votes
1answer
79 views

modeling the volume of TOB of a LOB

In Limit Order Books, orders at the same price are grouped and I call this group of orders a "price level"(I don't know if there's a name in literature). The total volume in this price level ...
2
votes
2answers
173 views

How to model asset prices for a very short time period

Geometric Brownian motion is the most common model for asset price evolution. Is it still viable for modeling asset prices in a very short time period? For example, I have time series of length 3600 ...
0
votes
0answers
33 views

What is the meaning of this notation, D lag t?

I'm reading the book Financial Markets Under the Microscope to study market microstructure. There is a notation that I could not understand. What is the meaning of D here? It is not used in the text ...
6
votes
3answers
403 views

How can we estimate new stock price after a large purchase?

Suppose someone buys $4bn of a particular stock over the period of a few weeks. Depending on how much that stock is being traded, you would expect that the price goes up in a visible way compared to ...
0
votes
0answers
58 views

Does anyone have codes that would solve the multi-period Kyle model?

Whenever I begin working on something new, I like to find existing examples of how things are done so that I can double check at least the basics before moving on to more complicated problems. I am ...
4
votes
0answers
46 views

Modeling regulations of middlemen

I am searching for some paper that models the regulations of market makers in stock or OTC markets. Is there anybody who have seen some marekt microstructure paper for modeling regulations and what ...
1
vote
1answer
113 views

Is the variance calculation correct in the book?

I'm reading the book "Financial Markets Under the Microscope" for my market microstructure studies. In the book, the variance of the market maker's gain is calculated as follows: Assume that with ...
3
votes
1answer
241 views

How to identify market makers in an orderbook?

I am trying to identify markets makers within an (options-)orderbook. Of course, this is far stretched, but I was wondering what kind of characteristics / patterns I should look at. I got the ...
0
votes
0answers
53 views

How to use the volatility indicator?

In the high frequency research, there are many research papers about the high frequency data to predict the volatility, My question is how to use the predicted volatility in the trading. And which is ...
2
votes
2answers
114 views

Order anticipation

Is there a way to anticipate order flow on a security. For simplicity's sake i'm referring to a security that is traded on one exchange and has a single order book, by anticipating order flow i mean ...
0
votes
0answers
20 views

Decision making framework for trading consumption assets in a forward exchange market

I am working on a forward market with limit order books. My idea is to illustrate market operations and trading behaviors through discrete event simulation. Consumption assets are traded in the market,...
4
votes
1answer
173 views

Optimization problem with a constraint

Consider the following maximization problem $$\max_{\{\tau(\cdot),q(\cdot)\}}\int_{\underline{\theta}}^{\bar{\theta}}\left(\theta q(\theta)-\dfrac{\gamma\sigma^{2}}{2}q^2(\theta)-\tau(\theta)\right)f(\...
1
vote
0answers
181 views

Market Making constant volatility assumption

I have read a few papers on market making and all(nearly) assume that the stock follows a brownian motion with no drift and constant volatility.These assumptions seems un-intuitive to me because of ...
1
vote
1answer
124 views

Futures vs. spot forecasting

If i have the belief that the futures lead the spot for price discovery, and I am able to forecast the future prices, given this forecast, what would be the best way to back out this number such that ...
0
votes
0answers
43 views

Does anyone have any pproximate idea what it would cost to get a FIX and OUCH connection from NASDAQ

I would like to know how much the exchange fees would be to connect and place orders directly with NASDAQ using one of their third party suppliers or directly. I took a look at the pricing page but it ...
0
votes
1answer
234 views

How do market makers make money

I was looking into market making and the common idea is market makers make money by capturing the spread. I am a little confused about how this works, since on an exchange if the stock is listed that ...
3
votes
3answers
614 views

How is market buy order executed when meeting both market sell order and limit sell order?

Currently, we all know how market buy order is executed when meeting only limit sell order for time-priority rule.
1
vote
2answers
339 views

Micro-pricing of futures

I’ve heard that a lot of HFT use so called micro price for making predictions for futures and other product. Basically it convert the LOB and order message to a single number. I know it is kind of ...
4
votes
1answer
280 views

Arithmetic Brownian Motion in Market Making papers

We often consider high-frequency market maker and suppose that the reference price is the arithmetic Brownian Motion: $dS_{t} = \sigma d W_t$ What is the difference $t_n - t_{n-1}$ in this case? Is ...
3
votes
1answer
263 views

Should a high-frequency market-making fair value be a point or bid/offer pair?

A single micro-price (e.g., volume weighted mid adjusted for recent trades) is simpler and can be used for pricing both our bid and our offer. But a bid fair and an offer fair have the desirable ...
2
votes
0answers
60 views

how to model NGARCH using 5min frequency data?

NGARCH model using 5-min High-frequency data in R I wanted to analyze some 5 minute frequency data of stock market. My teacher asked me to use NGARCH to model, but I didn't know how to program.Here ...
2
votes
1answer
406 views

Extreme Negative Gamma

I see Zero Hedge, talk about extreme negative gamma position of dealers all the time which it then ties back to market moves. I was wondering how do you calculate such market positioning based on ...
2
votes
0answers
137 views

Modelling Order Flow

I am trying to model the number of order that come at a distance d from the top of the book on either side, both bid and ask. I was wondering what is a good way to model orders which improve the ...
0
votes
1answer
48 views

Which dates are optimal for monthly rebalancing of a futures portfolio?

As there are microstructure issues with the commodity market, e.g. the Goldman roll, is there any research on when it is optimal to monthly rebalance?
2
votes
1answer
349 views

ETF Market Making

I understand market makers of ETFs earn a bid-ask spread (buying low from investors and selling high in the market). But how exactly do they determine when's the right time to buy, and at what price? ...
2
votes
1answer
405 views

High Frequency Trading in LoB - Sasha Stoikov and Marco Avellaneda

I am reading the paper High Frequecy Trading in a Limit Order Book by Sasha Stoikov and Marco Avellaneda. There is a point that I am having trouble understanding. The authors give a definition of ...

1
2 3 4 5