Trading and Market Microstructure

The course discusses the functioning of financial markets and trading and price determination in these markets. Topics covered include order submission and trading strategies, market structure and quality, settlement, transaction costs and liquidity, bubbles and crashes, price formation and technical analysis. The lectures will draw on academic and practitioner research as well as information from markets. The course is technical at some points but the focus throughout is on intuition and practical applications.

The set of topics typically covered follows.   

Topic 1. Orders              

• Orders and their characteristics
• Types of orders
• Advantages and disadvantages of each order type

Topic 2. Markets and settlement

• Market structure and its importance
• Types of market structures and their characteristics
• Market evolution and competition
• Settlement protocols and procedures across markets and asset classes
• Risks
• Netting
• The role of depositories and custodians 

Topic 3. Transaction costs 

• Digression: Trader types and some theory
• Importance of transaction costs
• Measuring transaction costs
• Determinants of transaction costs

Topic 4. Liquidity

• Liquidity and its importance
• Liquidity providers
• Measuring liquidity
• Episodes of illiquidity
• Liquidity comovement and liquidity risk

Topic 5. Non-equity markets 

• The FX market
• The bond market
  • Government bonds
  • Corporate bonds

Topic 6. Institutional AND INDIVIDUAL TRADES

• Features of institutional trading
• Hedge fund trading and the tech bubble
• High frequency trading
• Individual trading patterns

Topic 7. Market quality and price formation

• Market efficiency
• Measuring market quality: The random walk and autocorrelations in returns
• Cross-autocorrelations in returns
• Volatility
• Market links, spillovers and arbitrage
• Market manipulation

Topic 8. Speculation and arbitrage

• Arbitrage mechanics
• Position building
• Costs and risks
• The potential sources of profits

Topic 9. Crashes and bubbles 

• Bubbles
• Crashes
• Market breakdowns
• Regulatory tools 

Topic 10. Technical analysis 

• What is technical analysis?
• Simple methods
• Macro prediction

Readings/Textbooks:
There is no required textbook, and the handouts provided are intended to be self-standing.  An optional reading list, with relevant papers and books for interested students to reference, is provided.   

By the end of the course, the students should have an understanding of the current financial market landscape, the role of traders, the trading and price determination processes, and the opportunities and dangers confronting traders.

In presence

The lectures are discussion-style and interactive. In each topic, concepts are explained first, and followed by an example-oriented discussion of their practical applications. Learning is facilitated though a focus on these applications and student participation. A set of power point slides handed out in advance forms the basis for the lectures.
Compliant with COVID-19 guidelines

Grades are based on a written exam held during the normal exam period.  Exam questions will come from material covered during the lectures.