Fundamentals Of Electronic Trading

Evolution, current state of electronic trading. Data, analytics, practical aspects. Reinforcement learning.

What you'll learn

Learn the fundamentals of electronic markets

Learn the levels of data granularity and platform capacity, and why they are important for your objectives

Get to know the concepts of latency and observability

Learn how sequential decision making helps you achieve your goals in electronic markets

Get to know the importance of patterns and seasonalities

Prediction is king and ML/AI is not a magic wand

Requirements

No previous experience with electronic markets is necessary, you'll learn the fundamentals

Some experience with the concept of modern markets in financial instruments and asset classes is desirable

Description

The course is designed to give an introduction to fundamentals of electronic trading, a lucrative, growing, and highly competitive area of finance. The intro lecture gives and exposition of the course and the intended audience. We discuss evolution and the current state of electronic markets, why they work and how they are designed. A short discussion about likely future development of electronic markets is given. A thorough introduction to limit order markets, how and why they work and why  the continuous double auction design is used in many electronic markets.  Various representations of limit order books and their evolution is discussed with some demonstrations and animations. We then proceed to the super important topic of rules and regulations, how they are similar and different in various asset classes and regions. Data providers are discussed in a concise fragment. The core of the course in the discussion of sample data sets. I walk the audience through the structure of data sets. We discuss the two representative data streams: the order book state and the messages. I discuss levels of granularity in data and give a few examples of analytics helpful in making sense of the order book evolution. This section is supported by a reference to an academic paper which gives additional insights into the inner workings of limit order markets and the evolution of the order book.In the section on practical issues we discuss the implications of the data rate,  latency and time synchronization requirements,  stable patterns and their importance in designing successful products and applications in electronic trading. We also discuss serial data, prediction and handling of rare events. I provide a short discussion on the two major types of activities in electronic markets: market making and agency execution. The audience is provided with a focused discussion on reinforcement learning in electronic markets. The course ends with a short discussion on career choice and pros and contras of careers in an academic or a commercial environments.The course contains a few assignments and coding exercises. The course does not require any familiarity with electronic markets, but some introductory knowledge of markets is desirable.

Overview

Section 1: Introduction

Lecture 1 Introduction

Section 2: Current state and evolution of electronic markets

Lecture 2 Current state and evolution of electronic markets

Section 3: Limit order markets

Lecture 3 Limit order markets: basics

Lecture 4 Limit order markets: trading rules

Lecture 5 Limit order markets: data

Section 4: Data sources

Lecture 6 LOBSTER: sample data source

Section 5: Practical considerations: what you need to know

Lecture 7 Data streams, their granularity and their purpose

Lecture 8 Latency

Lecture 9 Relatively stable patterns, seasonalities and why they are important

Lecture 10 Prediction, serial data, electronic market features

Lecture 11 Recognizing and handling exceptional events

Lecture 12 Execution and market making as practical applications

Lecture 13 Sequential decision making, reinforcement learning in electronic markets: basics

Lecture 14 Research and development

Aspiring quantitative researchers and quantitative traders in electronic markets who would like to get up to speed with fundamentals of electronic trading,Anyone who is already employed in the industry and is choosing the direction of his/her professional journey and is interested in electronic trading,Professional developers and data scientists working in quantitative finance and thinking about specializing in electronic trading