Trading: High/Low/Zero Touch

For too long I have been carrying Barry Johnson’s book “Algorithmic Trading and DMA” around on my travels – not due to any fault of the book, but due lack of reading time. However, after having flown half way round the world twice in 2mths, I have finally complete Barry’s book. So what follows is my take on the highlights of the probably the best Algo/DMA book around:

• Want to know the difference between High/Low/Zero – page 7 is for you. Thanks goodness somebody has finally proviide the general population with an appropriate defintion
• Page 9 provides a clean overview of trading types – Portfolio/Systematic/Quantitative/High frequency/Statistical arbitrage
• Types of trading algorithms is nicely covered on page 13
• Transaction cost analysis (TCA) is discussed on page 20 (and page 49). Of particular interest is the point made by Barry that hidden costs are much more significant than visible costs. I wonder how many Single Bank Platforms have worked out their TCA? Chapter 6 goes into a lot more detail on transaction costs – pre and post trade, and trading related costs
• Request For Quote (RFQ) is nicely covered on page 42, and likewise RFS on the following page
• Continuous Auction provides a good overview of the matching rules that need to be applied to an order.
• Chapter 3 (World Markets) is probably a good read for anyone new to finance
• Orders (Chapter 4) is an excellent chapter in the coverage it provides on the different order types. I find it amazing the number of people who get order and trade mixed up
• Multi-leg (page 155) is essential what the Market Strategy Engine I blogged about sometime ago is achieving.
• How do you select the appropriate trading strategy? Chapter 7 provides some direction, and also touches on AlgoGenetics
• Chapter 8 (Order Placement) appropriate information if you happen to want to build your own venue that needs to implement order matching
• Spotting hidden liquidity (page 247) is an interesting read, as is the graph in figure 8-25. I’m sure user experience (UX) could have a field day with this data.
• Execution tactics (chapter 9) – why am I thinking actor/agent pattern here?
• Witching days – page 302
• High level architecture diagram – page 311/323. If you want to build an algo engine, chapter 11 is for you.
• Nice to see a chapter dedicated to news (chapter 14). Maybe in the future we’ll see a Twitter chapter

Overall I thoroughly enjoyed Algorithmic Trading and DMA. Chapter 3 (Orders) alone makes the book worth buying. Chapter summary and table/figures all make the book readable.

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~ by mdavey on November 7, 2010.