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MARKET MICROSTRUCTURE (I) PowerPoint Presentation
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MARKET MICROSTRUCTURE (I)

MARKET MICROSTRUCTURE (I)

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MARKET MICROSTRUCTURE (I)

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  1. MARKET MICROSTRUCTURE (I)

  2. The Trading Industry

  3. Trading Instruments • Real Assets • Financial Assets • Derivative Contracts • Insurance Contracts • Hybrid Contracts

  4. The Buy Side Investors Borrowers Hedgers Asset Exchangers Gamblers The Sell Side Dealers Brokers Broker-dealers Who Are The Players?

  5. Orders and Order Properties

  6. Market Orders • Market Orders Pay the Spread • Price Improvement • Market Impact • Execution Price Uncertainty

  7. Limit Orders • Limit Price Placement • Standing Limit Orders=Trading Options • How far behind the market • Price volatility • Expected Compensation of Offering Liquidity • Risks of Using Standing Limit Orders • Execution uncertainty • Ex post regret = adverse selection risk • Limit Orders Represent Absent Traders

  8. Stop Loss Order is Activated When Price Falls  Sell Stop Orders <> Options Stop Orders <> Limit Orders Stop Orders Add Momentum  Destabilizing Effect MIT is activated when prices are touched Becomes Market Order Price is up Sell Price is down  Buy Stabilizing Effect Stop VS. MIT Orders

  9. Validity and Expiration Instructions • GTC, GTW, GTM • Good-until-specified date • Market-on-open • Market-on-close

  10. Market Structures

  11. Trading Sessions • Continuous Markets • Call Markets • Call Versus Continuous Trading Sessions • Trading Hours • Tick Size

  12. Execution Systems • Quote-driven Dealer Markets • Order-driven Markets • Brokered Markets • Hybrid Markets

  13. Market Information Systems • Information Collection Systems • Information Distribution Systems • Ticker Symbols • Transparency • Order Routing Systems • Order Presentation Systems • Order Books

  14. Why People Trade

  15. Utilitarian Traders • Investors and BorrowersTo Move Money Through Time • Asset ExchangersTo Find Greater Value • HedgersTo Manage Risks • GamblersTo Entertain • FledglingsTo Learn • Cross-subsidizersTo Get Other Services • Tax AvoidersTo Minimize Tax

  16. Profit Motivated Traders • Speculators • Informed Traders • Value traders • News traders • Information-oriented technical traders • Arbitrageurs • Parasitic Traders • Order anticipators • Bluffers • Technical Traders • Dealers • Market Makers • Block Facilitators

  17. Futile Traders • Expect To Profit, but Do Not Profit • Inefficient Traders • Pseudo-informed Traders • Victimized Traders • Rogue Traders