About Order Book Models
- Thread starter bbt80
- Start date
I've initiated a thread like this one on futures.io. I intend to update my progress here less frequently, but more concisely. I do want to count on the valuable ideas of colleagues on this forum.
This is one of the few places in finance where looking at the actual data should come before reading academic literature. The basic concept of the LOB is very simple, what's complex is the actual ecosystem and (because players are very secretive) you are not going to find any truly useful books or articles about.
My suggestion would be to grab a recorded stream (there are several out there in free domain, usually surrounding some specific events like the flash crash) and write a simple LOB model (again, there are several suggested implementations floating around the web). Then spend a day or a week looking at the evolution of the book through time by hand.
Of course, that assumes that you are looking specifically at order-book style trading. If you are just trying to figure out a way to make a buck, there are easier things to get involved in.
@bbt80
Heres a few suggestions from my personal library.
Books:
"Dark Pools" by Scott Patterson (must read)
"Market Microstructure Theory" by Maureen O'Hara
"Inside The Black Box" by Rishi Narang
"Financial Markets and Trading" by Anatoly B. Schmidt (must read)
"Dark Pools - Off-Exchange Liquidity" by Erik Banks
"Market Microstructure In Emerging Markets" by Kent Baker
White Papers:
"Fake Geometric Brownian Motion & Its Option Pricing" by Xingjian Xu
"Market Maker Inventories & Stock Prices" by Terrence Hendershott
"The Implied Book" by squeezemetrics (must read)
"Short Is Long" by squeezemetrics (must read)
Heres a few suggestions from my personal library.
Books:
"Dark Pools" by Scott Patterson (must read)
"Market Microstructure Theory" by Maureen O'Hara
"Inside The Black Box" by Rishi Narang
"Financial Markets and Trading" by Anatoly B. Schmidt (must read)
"Dark Pools - Off-Exchange Liquidity" by Erik Banks
"Market Microstructure In Emerging Markets" by Kent Baker
White Papers:
"Fake Geometric Brownian Motion & Its Option Pricing" by Xingjian Xu
"Market Maker Inventories & Stock Prices" by Terrence Hendershott
"The Implied Book" by squeezemetrics (must read)
"Short Is Long" by squeezemetrics (must read)
I'm new here, so I'm not able to make any fair comparison. I just thought that It'd be nice to write more freely in one place, and then summarize the ideas/results in another. Both forums are great.
My idea is to start from the order book and find a niche between HFT/market makers and lower frequency strategies. The order book in Brazil is "open" and "centralized" (not blind and fragmented like in the US), so you have another dimension to take into account. For instance, you can choose to watch Morgan Stanley and UBS trading activity in stocks at the same time you see they hedging their exposition to Brazilian Reais in futures dollar contracts. Of course nobody is fool in this game and there're a couple of ways to try to hide one's intentions. But I think I know where to look for an edge. There're opportunities that are too risky for HFT/market makers to take (as you said). I really don't know if other algo/systematic traders already exploit those inefficiencies. But my expectations are low anyway. In a perfect world, I'd find something interesting/profitable and contact some financial institution. In an almost perfect one, I'd complete my masters/doctorate and publish something.
Thank you very much for sharing this! I'll certainly take a look.
I was unaware that Quantopian had shutdown recently.
https://www.quantrocket.com/blog/quantopian-shutting-down
https://www.quantrocket.com/blog/quantopian-shutting-down
Those takeaways were insightful. But the "anyone can become an expert in quant finance" motto have always amused me.