High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems

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Overview

Interest in high-frequency trading continues to grow, yet little has been published to help investors understand and implement high-frequency trading system-untill now. This book has everything you need to gain a firm grip on how high-frequency trading works and what it takes to apply this approach to your trading endeavors.

Written by industry expert Irene Aldridge, High-Frequency Trading offers innovative insights into this dynamic discipline. Covering all aspects of ...

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Overview

Interest in high-frequency trading continues to grow, yet little has been published to help investors understand and implement high-frequency trading system-untill now. This book has everything you need to gain a firm grip on how high-frequency trading works and what it takes to apply this approach to your trading endeavors.

Written by industry expert Irene Aldridge, High-Frequency Trading offers innovative insights into this dynamic discipline. Covering all aspects of high-frequency trading-from the formulation of ideas and the development of trading systems to application of capital and subsequent, performance evaluation-this reliable resource will put you in a better position to excel in today's turbulent markets.

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Product Details

  • ISBN-13: 9781118343500
  • Publisher: Wiley
  • Publication date: 4/22/2013
  • Series: Wiley Trading Series , #604
  • Edition number: 2
  • Pages: 306
  • Sales rank: 794,376
  • Product dimensions: 10.00 (w) x 7.20 (h) x 1.20 (d)

Table of Contents

Acknowledgments xi

Chapter 1 Introduction 1

Chapter 2 Evolution of High-Frequency Trading 7

Financial Markets and Technological Innovation 7

Evolution of Trading Methodology 13

Chapter 3 Overview of the Business of High-Frequency Trading 21

Comparison with Traditional Approaches to Trading 22

Market Participants 24

Operating Model 26

Economics 32

Capitalizing a High-Frequency Trading Business 34

Conclusion 35

Chapter 4 Financial Markets Suitable for High-Frequency Trading 37

Financial Markets and Their Suitability for High-Frequency Trading 38

Conclusion 47

Chapter 5 Evaluating Performance of High-Frequency Strategies 49

Basic Return Characteristics 49

Comparative Ratios 51

Performance Attribution 57

Other Considerations in Strategy Evaluation 58

Conclusion 60

Chapter 6 Orders, Traders, and Their Applicability to High-Frequency Trading 61

Order Types 61

Order Distributions 70

Conclusion 73

Chapter 7 Market Inefficiency and Profit Opportunities at Different Frequencies 75

Predictability of Price Moves at High Frequencies 78

Conclusion 89

Chapter 8 Searching for High-Frequency Trading Opportunities 91

Statistical Properties of Returns 91

Linear Econometric Models 97

Volatility Modeling 102

Nonlinear Models 108

Conclusion 114

Chapter 9 Working with Tick Data 115

Properties of Tick Data 116

Quantity and Quality of Tick Data 117

Bid-Ask Spreads 118

Bid-Ask Bounce 120

Modeling Arrivals of Tick Data 121

Applying Traditional Econometric Techniques to Tick Data 123

Conclusion 125

Chapter 10 Trading on Market Microstructure: Inventory Models 127

Overview of Inventory Trading Strategies 129

Orders, Traders,and Liquidity 130

Profitable Market Making 134

Directional Liquidity Provision 139

Conclusion 143

Chapter 11 Trading on Market Microstructure: Information Models 145

Measures of Asymmetric Information 146

Information-Based Trading Models 149

Conclusion 164

Chapter 12 Event Arbitrage 165

Developing Event Arbitrage Trading Strategies 165

What Constitutes an Event? 167

Forecasting Methodologies 168

Tradable News 173

Application of Event Arbitrage 175

Conclusion 184

Chapter 13 Statistical Arbitrage in High-Frequency Settings 185

Mathematical Foundations 186

Practical Applications of Statistical Arbitrage 188

Conclusion 199

Chapter 14 Creating and Managing Portfolios of High-Frequency Strategies 201

Analytical Foundations of Portfolio Optimization 202

Effective Portfolio Management Practices 211

Conclusion 217

Chapter 15 Back-Testing Trading Models 219

Evaluating Point Forecasts 220

Evaluating Directional Forecasts 222

Conclusion 231

Chapter 16 Implementing High-Frequency Trading Systems 233

Model Development Life Cycle 234

System Implementation 236

Testing Trading Systems 246

Conclusion 249

Chapter 17 Risk Management 251

Determining Risk Management Coals 252

Measuring Risk 253

Managing Risk 266

Conclusion 271

Chapter 18 Executing and Monitoring High-Frequency Trading 273

Executing High-Frequency Trading Systems 274

Monitoring High-Frequency Execution 280

Conclusion 281

Chapter 19 Post-Trade Profitability Analysis 283

Post-Trade Cost Analysis 284

Post-Trade Performance Analysis 295

Conclusion 301

References 303

About the Web Site 323

About the Author 325

Index 327

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Customer Reviews

Average Rating 3.5
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Sort by: Showing all of 6 Customer Reviews
  • Posted December 1, 2009

    more from this reviewer

    Solid Primer for Traders and Investors

    Irene's new book delivers exactly what it sets out to achieve. It opens the arena of High-Frequency Trading to traders and investors looking to understand why trading is becoming automated and how traders operate in this environment. This books makes academic research useful by explaining how to create trading strategies.

    This is the only book that shows a trader how to build a trading operation from trading strategies to risk management. This is also the only material that defines what is meant by High Frequency Trading based on an actual survey of Hedge Fund managers from FinAlternatives (rather than rely solely on academics).

    The overview statistical and econometric techniques is immensely helpful to walk though the details of how to measure performance in a High Frequency environment. The implication of not holding positions overnight on the Sharpe ratio and on risk management is important for traders to understand.

    The chapters that explain High-Frequency models is excellent. This gives me insight into the research that drives many of the common trading strategies. The media coverage of High-Frequency Trading focuses on flash orders and co-location whereas, this book outlines a broad survey of approaches to High-Frequency Trading. After reading this book, I understand different ways that I can hunt for alpha.

    For individual investors that do not have the benefit on the risk management infrastructure of an investment bank, this book provides an invaluable guide to building a trading operation. A lot of the effort to develop High-Frequency Trading involves expertise in coding and Irene goes a long way to explain it. Without this book an investor would have no idea of the risks that are unique to High-Frequency Trading and the technique that are used to manage these risks.

    I recommend this book to you.

    3 out of 3 people found this review helpful.

    Was this review helpful? Yes  No   Report this review
  • Anonymous

    Posted December 27, 2013

    Grossly Mistitled

    Purports to be a guide to high frequency and algorithmic trading. Instead a review and compendium of studies about markets and characteristics of high frequency (tick) data. The studies are interesting, the review of how the markets actually work fascinating. Contrary to the PR docs, if you actually READ THE BOOK, you will find no high frequency trading algorithms discussed.

    Was this review helpful? Yes  No   Report this review
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    Posted August 21, 2010

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    Posted December 16, 2009

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  • Anonymous

    Posted December 13, 2009

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  • Anonymous

    Posted January 17, 2011

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