Interesting Story 1 Interesting Story 2 Interesting Story

Interesting Story 1

Interesting Story 2

Interesting Story 3

Interesting Story Goldman claimed that it could be used to “manipulate markets” 4

Interesting Story 5

Interesting 6

SUPPLEMENTARY REVIEW Orders: Instructions that traders give to brokers and exchanges which arrange their trades. 7

SUPPLEMENTARY REVIEW Orders: Instructions that traders give to brokers and exchanges which arrange their trades. 8

SUPPLEMENTARY REVIEW Ø They are the fundamental building blocks of trading strategies. Ø Specify what traders want to trade, whether to buy or sell, how much, when and how to trade, and on what terms. Ø It is the way in which we communicate our information and ‘talk to’ the market. 9

SUPPLEMENTARY REVIEW Ø In general, traders that can respond quickly to changes in market conditions have an advantage over traders that respond more slowly. Ø In general, algorithmic traders that submit orders automatically are faster then traders that submit orders manually. 10

SUPPLEMENTARY REVIEW Ø Traders indicate that they are willing to buy or sell by making bids and offers at various prices. Ø The highest bid price in the market is the best bid and the lowest offer price is the best offer (or equivalently, best ask). 11

SUPPLEMENTARY REVIEW A market quotation shows the best bid and offer in the market: ESH 2 1368. 00 at 1368. 50, 500 by 400 The difference between the best bid and the best ask (the market quote) is the bid/ask spread. So in our example above it would be. 50. 12

SUPPLEMENTARY REVIEW ØA market is liquid when traders can trade without making a large affect on price. Ø Orders 13 either demand liquidity or supply liquidity.

SUPPLEMENTARY REVIEW �A market order is an instruction to trade at the best price currently available in the market. They demand liquidity. �They need to trade now, so they absorb outstanding offers to trade. 14

SUPPLEMENTARY REVIEW Ø A limit order is an instruction to trade at the best price available, but only if it is no worse than the limit price specified by the trader. It offers liquidity. Ø If no trader is immediately willing to take the opposite side at an acceptable price, the order will not trade. Instead, it will stand as an offer to trade until someone is either willing to trade at its limit price, until it expires, or the trader who submitted the order cancels it. 15

SUPPLEMENTARY REVIEW CME Level II Quotes: 5 levels of bids and offers Ex - Limit Order Buy: 1427. 25 ØTriggered if best ask comes down to that price or better. Ex – Limit Order Sell: 1430. 00 ØTriggered if best bid comes to that price or better. 16

SUPPLEMENTARY REVIEW Ø Traders most commonly use stop orders to stop their losses when prices move against their positions. Ø If you are long, you will use a sell stop. If the price falls and touches/moves through your sell stop, the sell stop goes to market and gets you out of your position. Ø If you are short, you will use a buy stop. If the price rises and touches/moves through your buy stop, the buy stop goes to market and gets you out of your position. 17

SUPPLEMENTARY REVIEW Ø Instead of having a stop turn into a market order, you can use a stop limit as well. Ø Once the stop-price is reached, the stop-limit order becomes a limit order that will be executed at or better then the limit price Ø The advantage is you can specify which prices your willing to accept for your stop. The drawback is the execution risk. 18

SUPPLEMENTARY REVIEW Ø Instead of having a stop turn into a market order, you can use a stop limit as well. Ø Once the stop-price is reached, the stop-limit order becomes a limit order that will be executed at or better then the limit price Ø The advantage is you can specify which prices your willing to accept for your stop. The drawback is the execution risk. 19

SUPPLEMENTARY REVIEW 20

Session 3: Prerequisites for Algorithmic Trading System Development 21

Agenda Education Session 1: Industry Introduction and Derivatives Overview Session 2: Overview of Market Microstructure Session 3: Prerequisites for Algorithmic Trading System (ATS) Development and Selecting a Platform Session 4: Review of the Scientific Method and the ATS Development Process Session 5: Formulation and Specification of a Strategy Session 6: Backtesting and Optimization Session 7: Implementation / Risk Management Research Session 1: Workshop Session 2 Workshop Competition - 2 weeks (10 days) 22

Agenda � Buy or build a trading infrastructure. � Collect data, e. g. , timestamps, order book history, numbers, events. � Clean � For and store the data in a database our purposes, we will use a free trial, collect data from a data provider. Data will probably be sufficient for our needs. 23