The Laws of Trading

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  • Format: Hardcover
  • Copyright: 2019-06-18
  • Publisher: John Wiley & Sons Inc
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Supplemental Materials

What is included with this book?


Every decision is a trade. Learn to think about the ones you should do — and the ones you shouldn’t.

Trading books generally break down into two categories: the ones which claim to teach you how to make money trading, and the memoir-style books recounting scandals and bad behavior. But the former don't have profitable trades to teach; if they did they'd keep those trades to themselves. And the latter are frequently entertaining, but they don't leave you with much you can apply in your own life. The Laws of Trading is different.

All of our relationships and decisions involve trading at some level. This is a book about decision-making through the lens of a professional prop trader. For years, behavioral and cognitive scientists have shown us how human decision-making is flawed and biased. But how do you learn to avoid these problems in day-to-day decisions where you have to react in real-time? What are the important things to think about and to act on? The world needs a book by a prop trader who has lived, breathed and taught trading for a living, drawing upon years of insights on the trading floor in real markets, good and bad, whether going sideways, crashing, or bubbling over. If you can master the decision-making skills needed to profitably trade in modern markets, you can master decision-making in all walks of life. This book will teach you exactly those skills.

  • Introduces, develops, and applies one law per chapter, making it easy not only to remember useful concepts, but also to have them at the ready in any situation.
  • Shows you how to find and think about the “special edge” of your organization, and yourself.
  • Teaches you how to handle the interaction of people with artificially intelligent (AI) machines that make decisions, a skill that is rapidly becoming essential in the AI-driven economy of the future.
  • Includes a "bonus" digital ancillary, an Excel spreadsheet with various worked examples that expand on the scenarios described in the book.

Do you need to make rational decisions in a competitive environment? Almost everyone does. This book will teach you the tools that let you do your job better. 

Author Biography

AGUSTIN LEBRON began his career as a trader and researcher at Jane Street Capital, one of the largest market-making firms in the world. Over the years he traded many kinds of securities: equities, futures, commodities, options, and an assortment of other derivatives, and has created, developed and implemented several successful trading strategies. He currently runs the consulting firm Essilen Research, where he is dedicated to helping clients integrate modern decision-making approaches in their business.

Table of Contents

Acknowledgments vii

Foreword ix
Aaron Brown

Introduction xiii

Chapter 1 Motivation 1

Know why you are doing a trade before you trade 1

Chapter 2 Adverse Selection 21

You’re never happy with the amount you traded 22

Chapter 3 Risk 41

Take only the risks you’re being paid to take Hedge the others 41

Chapter 4 Liquidity 71

Put on a risk using the most liquid instrument for that risk 72

Chapter 5 Edge 93

If you can’t explain your edge in five minutes, you don’t have a very good one 95

Chapter 6 Models 115

The model expresses the edge 115

Chapter 7 Costs and Capacity 141

If you think your costs are negligible relative to your edge, you’re wrong about at least one of them 142

Chapter 8 Possibility 167

Just because something has never happened doesn’t mean it can’t 171

Chapter 9 Alignment 197

Working to align everyone’s interests is time well spent 198

Chapter 10 Technology 217

If you don’t master technology and data, you’re losing to someone who does 220

Chapter 11 Adaptation 239

If you’re not getting better, you’re getting worse 240

Notes 261

Index 271

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