Mastering the Art of Equity Trading Through Simulation, + Web-Based Software The TraderEx Course

by Schwartz, Robert A.; Sipress, Gregory M.; Weber, Bruce W.

• ISBN13: 9780470464854
• ISBN10: 0470464852
• Edition: 1st
• Format: Paperback
• Copyright: 2010-07-06
• Publisher: Wiley

Summary

The TraderEx Simulation Course is a guidebook to interactive computer simulation designed to provide participants with hands-on experience in making tactical trading decisions and implementing them in different market environments including continuous order drive markets, quite driven, dealer markets, call auction markets, and block trading markets, among other market variations. By operating in these different markets, the player comes to understand a good deal about what trading involves and how market design impacts trading decisions. The simulation captures the time element involved in trading, and prices in the simulation move with startling velocity in brief intervals of time, just as they do in real markets. As prices change, trading opportunities can appear and vanish. This book provides a virtual platform that gives users hands-on experience in making tactical trading decisions, shows exactly how prices are established in the marketplace, teaches users how the structure of a marketplace influences participant decisions (not all markets operate the same), and is an excellent source of self-teaching or student exercises.

Author Biography

Robert A. Schwartz is Marvin M. Speiser Professor of Finance and University Distinguished Professor in the Zicklin School of Business, Baruch College, CUNY. He is the developer, with Bruce Weber and Gregory Sipress, of the trading and market structure simulation, TraderEx. Gregory M. Sipress is the head of software development at TraderEx, LLC. Bruce W. Weber is a Professor of Information Management at the London Business School.

Table of Contents

Foreword	p. ix
Preface	p. xi
How TraderEx Works	p. xii
Who This Book is For	p. xiii
Overview of the Book	p. xiv
Downloading the TraderEx Software	p. xvii
How TraderEx Works with Micro Markets	p. xvii
Acknowledgments	p. xix
An Overview of Equity Market Trading	p. 1
Equity Market Trading	p. 3
The Costs of Trading	p. 5
Liquidity	p. 8
Market Structure	p. 9
Informational Efficiency (or the Lack Thereof)	p. 11
Expectations	p. 14
The Players	p. 16
Summary	p. 18
Simulation as a Learning Tool	p. 19
Canned versus Computer Generated Prices and Quotes	p. 19
Appendix: Inter-Temporal Returns Correlation	p. 33
Summary	p. 37
How to Use TraderEx	p. 39
An Overview of the TraderEx Environment	p. 40
The Continuous Order Book Market	p. 45
The Dealer Market	p. 63
Call Auctions	p. 67
Block Trading Facility	p. 70
Crossing Network	p. 77
Hybrid Markets	p. 78
Summary	p. 81
Introduction to the Trading Exercises	p. 83
The Buy-Side Perspective	p. 84
The Sell-Side Intermediary Perspective	p. 93
TraderEx Performance Measures	p. 96
Summary	p. 104
TraderEx Exercises	p. 105
Microeconomics Goes to Market	p. 107
The Look of a Financial Market	p. 108
What Are Your Attitudes Toward Risk?	p. 114
Call Market Trading	p. 117
Trading Costs in Action	p. 123
Dealer Costs and Inventory Control	p. 126
Inter-Market Competition for a Stock Exchange	p. 128
Finding and Equilibrium Value	p. 131
Economic Effects of an Order Protection Rule	p. 133
Conclusion	p. 135
The Order Book Market Structure	p. 137
Entering Limit Orders	p. 138
Entering Market Orders	p. 141
Adjusting Limit Orders	p. 142
Sizing your Orders-Markets and Limits	p. 144
Post-Trade Analysis	p. 147
A Really Big Order	p. 149
Another Really Big Order	p. 157
Illiquidity	p. 157
Heightened Volatility	p. 159
News and Changing Expectations	p. 162
Endogenous Expectations	p. 165
A One-Year Holding Period	p. 166
Crossing Networks	p. 167
A Networked Simulation	p. 168
Conclusion	p. 172
The Call Auction Market Structure	p. 173
The Price Setting Mechanism in TraderEx Call Auctions	p. 174
Mechanics of the Opening Call Auction	p. 182
Your TraderEx Call Auctions Orders	p. 186
Your Influence on TraderEx Call Auction Prices	p. 186
Participating in the Opening Call Auction	p. 191
Working a Large Order with Call Auctions	p. 192
Proprietary Trading with Call Auction, and News Releases	p. 206
Emphasizing Different Dimensions of Trading Performance	p. 207
Alternative Call Structures: A Partially Disclosed Call Auction and a Time Priority Call Auction	p. 208
Conclusion	p. 211
Dealer Markets: What Do the Trading Intermediaries Do?	p. 213
Operations of Quote Driven Markets	p. 214
Changing Quotes to Control your Inventory	p. 219
Market Maker Performance	p. 221
Market Maker Risk Performance	p. 223
Preferencing in Market Maker Systems	p. 225
Volatility and Market Making	p. 228
Low Liquidity and Market Making	p. 229
Alternative Trading Systems and Market Making	p. 233
Conclusion	p. 234
Dark Pools: How Undisclosed Liquidity Works	p. 235
Mechanics of the Dark Pool	p. 240
Seeking Advantages from Dark Pool Pricing	p. 242
Working a Large Order with a Dark Pool	p. 244
Proprietary Trading with Dark Pool, and News Releases	p. 246
Emphasizing Different Dimensions of Trading Performance	p. 247
Dark Pools and Trade-Through Rules	p. 249
Conclusion	p. 250
About the Authors	p. 251
Index	p. 253
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