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market microstructure

MidasCFA

Rutgers MSMF Quantneter
It's a terminology used and abused by a lot of job descriptions on career boards.

I never really fully understand it though. I have a vague felling about its being related to the study of transaction cost, bid-ask spread, execution efficienty etc. Can anyone offer some authority over its definition/scope/usages?

what exactly does it mean? How can you educate yourself about this topic? How is it relevant to quant finance/trading roles?
 
This is to funny....

Market Microstructure in the year 1908....
..broker would hand a trade ticket to a runner (250lb linebacker)
the runner would bull down the street. knocking people out of the way
to get to the exchange and fight for the execution.

This is an example of a 250lb "microstructure".

Sometimes brokers would send a bunch of "250lb microstructs" running
up and down Wall Street to confuse the other players and create a frenzy.

It was part of the transaction cost calculation, bloody nose and all :)

HA HA HA HA
AAHHHH The good old days.
 

MidasCFA

Rutgers MSMF Quantneter
hmmm.....doesn't seem like a topic that would pique a lot of interest eh?

unless someone proves it wrong, my conclusion would then be that there is little gain to be made for career development from learning about market microstructure.

yeah?
 
I believe it's essential for successful day trading ;)
It pertains more to scientific trading in the common lingo, so eager to learn in depth about it.
 
Guys, here's a wikipedia link wrt market microstructure -- Market microstructure - Wikipedia, the free encyclopedia.

Also, market microstructure is pretty relevant to algorithmic trading -- for instance, we have a client right now that is wanting to hire someone to work on coming up with trading strategies and implementing trading strategies, and they are pretty keen on individuals that understand market microstructure.
 

MidasCFA

Rutgers MSMF Quantneter
Guys, here's a wikipedia link wrt market microstructure -- Market microstructure - Wikipedia, the free encyclopedia.

Also, market microstructure is pretty relevant to algorithmic trading -- for instance, we have a client right now that is wanting to hire someone to work on coming up with trading strategies and implementing trading strategies, and they are pretty keen on individuals that understand market microstructure.

thanks for sharing your view sameer.

And I think the wiki definition is pretty good:

Microstructure deals with issues of market structure and design, price formation and price discovery, transaction and timing cost, information and disclosure, and market maker and investor behavior.

Market structure and design
This factor focuses on the relationship between price determination and trading rules. In some markets, for instance, assets are traded through dealers who keep an inventory (e.g., new cars), while other markets are dominated by brokers who act as intermediaries (e.g. housing). One of the important questions in microstructure research is how market structure affects trading costs and whether one structure is more efficient than another.

Price formation and discovery

This factor focuses on the process by which the price for an asset is determined. For example, in some markets prices are formed through an auction process (e.g. eBay), in other markets prices are negotiated (e.g., new cars) or simply posted (e.g. local supermarket) and buyers can choose to buy or not.

Transaction cost and timing cost

This factor focuses on transaction cost and timing cost and the impact of transaction cost on investment returns and execution methods. Transaction costs include order processing costs, adverse selection costs, inventory holding costs, and monopoly power.

Information and disclosure

This factor focuses on the market information and transparency and the impact of the information on the behavior of the market participants.
 
we have a client right now that is wanting to hire someone to work on coming up with trading strategies and implementing trading strategies, and they are pretty keen on individuals that understand market microstructure.

Hey do I have a chance? (QuantNetwork - Financial Engineering Forum - View Single Post - Financial Engineering and Trading)

I am much interested in this stuff and shall be obliged if someone suggests in-depth preparation (books, papers, course etc.) on the subject.
 
suman, it's a bit tricky on a couple fronts:
1. they are looking for someone that has actively done algo trading development.
2. the whole work visa situation make it even more complex with you being in india -- i'm sure you've heard there are lotteries now for the H1B work visa. if one is already in the US, then it makes it much easier.

my recommendation, if you want to eventually work in the US, would be to go one of two routes:
1. find a firm that has an international office in india and work for them -- they might allow you to make a switch to the US office at some point
2. do what countless other people usually do -- come study in the US and then find a job here after that.

on the books and courses -- I think there are others on the forum that are a lot more qualified to answer that question; I will leave that one for them.

In any case, I feel like I'm hijacking the thread here. :) Okay, back to market microstructure!
 
2. do what countless other people usually do -- come study in the US and then find a job here after that.

At the risk of going off-topic, this may be a bit dicey. The job situation isn't very sanguine in the USA. In addition, given the current economic circumstances, I expect a populist reaction to immigration to assume tangible form. For instance, take a look at this YouTube video.
 
Book Suggestion

A great book about Market Microstructure.

Trading and Exchanges : Market Microstructure for Practitioners by Larry Harris.

It covers this subject in great detail, very practically oriented and has countless great anecdotes.
 
Sorry to digress, last time. Like I said earlier I had no intention to migrate to US. There is much outsourcing being done... firms coming to Bangalore, Mumbai, Gurgaon etc. The reply from Sameer was much helpful.
 
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