Market microstructure

Discussion in 'Trading' started by osho67, Sep 7, 2005.

  1. Hello

    I've beed reading about something called Market microstructure on these boards, I know there are some books on the subject but can someone please offer a summary of what Market microstructure is about? What does it measure ?

    I trade YM intraday, is Market microstructure helpful for this kind of trading?

    Many Thanks
  2. Learner


    Surely not! I returned the book by a PhD. and got my refund.:(
  3. So not useful to applying intraday trading, is it academic theoretical stuff? But what is it, could you please provide a definition or summary ?
  4. MTE


    Yes, it is very theoretical and academic. Just Google it and there's a ton of academic stuff on it.

  5. you can google a formal definition but basically its all the factors that influence how a financial instrument is traded. (price formation, price discovery, transaction costs, etc, etc).

    googling that term on amazon will bring you to 3-4 exceptional books on the subject. Probably the best known is Harris book called "Trading and Exchanges".

    IB sent this book (oddly enough) to a lot of its customers a while back and a bunch got dumped onto ebay for a while.

    I say oddly enough because although it doesn't contain one "trading setup" in the whole thing, its actually one of the best books on trading you could ever hope to read. Perhaps that is one of the reasons IB shipped it rather than something customers could complain about (I tried what the book said and lost a lot of money, yadda yadda). :p

    A base knowlege of the subject is importat but if your just trading YM, it won't improve your trading much IMO. It becomes increasingly necessary to study microstructure when you are doing automated trading or having to move larger blocks around and have to figure out how to build your algrothims because market impact can be substantial if you aren't careful.

    hope that helps....
  6. Thankyou for the replies

    In general terms how is it important for automated trading ? Do you mean scalping and hundreds of trades a day, or large number of contracts ?

    Many Thanks
  7. cosine


    Market microstructure mostly is about information, orders, and volumes. It is highly theoritical, not intuitive, and sometimes wrong or relies on strong hypothesis.

    However, some microstructure theories are important if you truly want to understand what trading is about, and differenciate between what is factual and what is simple luck.

    - cosine

  8. cosine


    Very important for scalping.

  9. Thanks

    I am trading intraday and trying to go for longer moves, not trying to scalp a few points on a 100 trades or something similar, so in this scenario learning about Market microstructure would be less important ?
  10. Learner


    Full of math formulas. If you day trading YM you could beat the "Ph.D." author with your hands down......

    I am not sure if it is good for automated trading or not......It is too complicated to me.

    Simple is Best.
    #10     Sep 7, 2005