Introduction to Market Microstructure

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650 students

Course introduction

Market microstructure is often an overlooked field, far less known than many other fields in finance. Questions of market design, trading, and liquidity have long been wrongly considered a minor subject. But the 2008 liquidity crisis and the strong development of high frequency trading have proved otherwise. Today lectures on market microstructure are spreading in finance masters’ programmes.

Nevertheless, from the outside markets often look mysterious, and the smaller the timescale, the more technical and mysterious they seem. Short-term price changes may seem strange and hard to interpret. In fact, we will show you that with some key concepts in mind and some basic reasoning you will understand the main mechanisms at play in electronic trading in just 2 hours. This MOOC can also be viewed as a first step for everyone before they have access to more advanced academic material.

Firstly, whether the next trade is most likely to be a buy or a sell.

Secondly, where the next quotes will be on average after a given trade.

And lastly, where our expected average price will be 30 seconds after a trade occurs on a given exchange.

 

Main content of this five-part lecture

In practice, our lecture is divided into 5 independent parts, with 17 videos in total.

The initial introduction is designed for attendees that are not familiar with today’s market principles and trading terminology.

The first part describes the European liquidity landscape from MiFID 1 to MiFID 2 over the past 10 years.

The second part introduces the key practical questions in Microstructure from an investor’s perspective.

The third part highlights the orderbook properties that relate to turnover, spread volatility and available sizes on the first limits.

The last two parts are designed for attendees who want more than just a basic introduction to market microstructure.

The fourth part reviews questions of competition across markets and market fragmentation.

The fifth and final part highlights three examples regarding orderbook forecasting

 

Who is this course for?

This is an introductory course. It was created for non-specialists: for students, practitioners who are already working in finance, as well as for academics from other fields.

Today the problem is that for anyone who needs to seriously refresh their memories of their probability course, advanced specialised books written by academics won’t be an easy option.

On the contrary, our course has no prerequisites. The only thing we rely on is our attendees’ curiosity about markets and a taste for data and logical reasoning.

  • Introduction
    3
    • Part 1: Fragmentation and Liquidity in European Markets
    • Part 2: Introduction to the orderbook
    • Introduction: test
      4 questions
  • I. European markets fragmentation and liquidity
    3
    • Part 1: European markets fragmentation and liquidity
    • Part 2: Turnover, volumes and spreads
    • European markets fragmentation and liquidity: test
      4 questions
  • II. Key practical questions from an investor's point of view
    4
    • Part 1: Key practical questions from an investor’s point of view
    • Part 2: Main types of trading, trading algorithms
    • Part 3: How to measure the performances of trading algorithms
    • Key practical questions from an investor’s point of view: test
      6 questions
  • III. Key orderbook properties
    5
    • Part 1: Orderbook properties: How bid-ask spreads, turnover, available sizes and volatility relate together
    • Part 2: Orderbook properties: How bid-ask spreads, turnover, available volumes and volatility relate together
    • Part 3: Orderbook properties: Average Trade Size and Turnover, Bid-Ask spreads and Turnover
    • Part 4: Orderbook properties: Bid-Ask spreads and Volatility, First limit sizes and Turnover
    • Key orderbook properties: test
      4 questions
  • IV. Market fragmentation and competition across venues
    4
    • Part 1: Market fragmentation: How does market fragmentation relate to the characteristics of the orderbooks across different venues?
    • Part 2: Market fragmentation: Fragmentation, relative number of trades and relative average trade sizes
    • Part 3: Market fragmentation: Fragmentation, relative available sizes and relative bid-ask spreads
    • Market fragmentation and competition across venues: test
      4 questions
  • V. Key forecast based on the orderbook
    5
    • Part 1: Key forecast based on the orderbook: Which data for which forecasting horizon?
    • Part 2: Key forecast based on the orderbook: Using the orderbook imbalance to forecast the next trade side
    • Part 3: Key forecast based on the orderbook: Forecasting the next trade’s orderbook after an agressive buy
    • Part 4: Key forecast based on the orderbook: Future price profile after an agressive trade on a given venue
    • Key forecast based on the orderbook: test
      5 questions
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