لایب سان

Author(s): Jay Vaananen

Publisher: For Dummies, Year: 2015

ISBN: 1118879198,9781118879191

Contents at a Glance Introduction ................................................................ 1 Part I: Getting Started with Dark Pools ......................... 5 Chapter 1: Focusing on Dark Pools and High Frequency Trading, Just the Basics ...... 7 Chapter 2: Taking a Dip into Dark Pools ....................................................................... 15 Chapter 3: Grappling with the Ins and Outs of Securities Markets ........................... 25 Part II: Diving into Dark Pool Markets ........................ 37 Chapter 4: Introducing Dark Pool Providers ................................................................ 39 Chapter 5: Meeting the Players and Places .................................................................. 53 Chapter 6: Regulating Dark Pools .................................................................................. 65 Part III: Coming to Grips with Automated Trading ........ 77 Chapter 7: Comprehending Automated Trading ......................................................... 79 Chapter 8: Grasping Standard Order Types ................................................................. 93 Chapter 9: Identifying the Special Order Types ......................................................... 105 Chapter 10: Delving into High Frequency Trading .................................................... 119 Chapter 11: Understanding Key High Frequency Trading Strategies...................... 133 Part IV: Being Aware of the Risks of Dark Pools......... 147 Chapter 12: Jockeying Too Much for Position ........................................................... 149 Chapter 13: The Ins and Outs of Flash Crashes ......................................................... 163 Part V: The Part of Tens ........................................... 181 Chapter 14: Ten of the Best Dark Pool/HFT Websites .............................................. 183 Chapter 15: Ten Ways to Swim Safely in Dark Pools ................................................. 191 Chapter 16: Ten Common Algorithmic Strategies ..................................................... 199 Chapter 17: Ten Things to Know About Market Microstructure ............................. 207 Index ...................................................................... 215 Table of Contents Introduction ................................................................. 1 About This Book .............................................................................................. 1 Foolish Assumptions ....................................................................................... 2 Icons Used in This Book ................................................................................. 3 Beyond the Book ............................................................................................. 3 Where to Go from Here ................................................................................... 4 Part I: Getting Started with Dark Pools .......................... 5 Chapter 1: Focusing on Dark Pools and High Frequency Trading, Just the Basics 7 Defining Dark Pools: Why They’re an Investment Option .......................... 8 Explaining What High Frequency Trading Is .............................................. 10 Knowing Who’s Involved When Investing in Dark Pools .......................... 11 Brokers can make or break you ......................................................... 11 The other important folk .................................................................... 12 Looking at the Order Types ......................................................................... 12 Considering the regular order types ................................................. 13 Eyeing the special order types ........................................................... 13 Regulating the Markets: Legislators Take Action ...................................... 13 Chapter 2: Taking a Dip into Dark Pools 15 Taking a Snapshot of Dark Pools: What They Are and Aren’t ................. 15 Settled outside the public eye ............................................................ 16 Need for secrecy: Dark versus lit ....................................................... 16 Improving price .................................................................................... 17 Examining How Dark Pools Work: Step by Step ........................................ 18 Weighing the Rewards and the Risks .......................................................... 19 Identifying potential rewards ............................................................. 19 Recognising the risks and preparing for them ................................. 20 Investigating Whether Your Trades Are Exchanged in Dark Pools......... 21 Asking your broker the right questions ............................................ 21 Sleuthing on your own if you don’t use a broker............................. 22 Making the Best of Your Transactions ....................................................... 23 Chapter 3: Grappling with the Ins and Outs of Securities Markets 25 Figuring Out Pricing: The World of Bids and Offers.................................. 25 Grasping how pricing works............................................................... 26 Looking at opening and closing prices ............................................. 28 Looking at the highest and lowest prices ......................................... 28 Dark Pools & High Frequency Trading For Dummiesvi Making Buying and Selling Easier: Liquidity .............................................. 29 Market liquidity .................................................................................... 31 Off-market liquidity.............................................................................. 32 Understanding the Importance of Market Makers .................................... 32 Using VWAP and MVWAP ................................................................... 33 Getting to grips with order routing ................................................... 34 Focusing on price/time priority ......................................................... 35 Eyeing direct market access ............................................................... 36 Part II: Diving into Dark Pool Markets ......................... 37 Chapter 4: Introducing Dark Pool Providers 39 Comparing the Different Types of Dark Pool Providers ........................... 40 Big-time investments: Block-oriented dark pools ............................ 40 No minimum shares required: Streaming liquidity pools............... 41 Crossing pools ...................................................................................... 41 Looking at Bank- and Broker-Owned Providers......................................... 42 Barclays LX Liquidity Cross ............................................................... 42 CrossFinder .......................................................................................... 44 Fidelity Capital Markets ...................................................................... 45 GETCO/KCG .......................................................................................... 46 Sigma X .................................................................................................. 46 ConvergEx ............................................................................................. 47 Alpha Y .................................................................................................. 48 DBA/Super X ......................................................................................... 48 Looking at Exchange-Owned Providers ...................................................... 48 International Securities Exchange (ISE) ............................................ 49 New York Stock Exchange/Euronext ................................................. 49 BATS Global Markets ........................................................................... 50 Eyeing Some Providers That Have Been Bought Out ............................... 51 Chi-X Global .......................................................................................... 51 Instinet .................................................................................................. 51 Chapter 5: Meeting the Players and Places 53 Recognising Who the Market Makers Are .................................................. 53 Heading towards extinction: The human touch .............................. 54 Going the automated route................................................................. 55 Examining the Venue: Where All the Action Takes Place......................... 55 Knowing the venue options ................................................................ 56 Differentiating between stock markets and dark pools .................. 56 Identifying the Cast of Characters ............................................................... 58 Brokers and dealers............................................................................. 58 Private investors .................................................................................. 59 Regulators ............................................................................................. 60 viiTable of Contents Data centres.......................................................................................... 61 Journalists, bloggers and writers ...................................................... 61 Academia .............................................................................................. 62 Automated traders............................................................................... 62 Chapter 6: Regulating Dark Pools 65 Relating to Regulation ................................................................................... 66 Defining regulation and legislation .................................................... 66 Taking action to be more empowered about legislation and regulation ................................................................ 67 Eyeing Regulation of Dark Pools in the United States: Reg NMS ............. 68 Rule 610: The market access rule ...................................................... 69 Rule 611: The order protection rule .................................................. 70 Rule 612: The sub-penny rule ............................................................. 71 Looking at Europe — the Fastest-Growing Dark Pool Fixture ................. 72 Markets in Financial Instruments Directive...................................... 72 Financial transaction tax (FTT).......................................................... 74 Considering Other Markets .......................................................................... 74 Canada ................................................................................................... 75 Asia ........................................................................................................ 75 Australia ................................................................................................ 75 Part III: Coming to Grips with Automated Trading ......... 77 Chapter 7: Comprehending Automated Trading 79 Identifying Quantitative Analysts ................................................................ 80 What makes a good quant .................................................................. 80 What quants do .................................................................................... 81 Why quants are essential .................................................................... 83 Entering the Realm of the Algorithm .......................................................... 84 Knowing what an algorithm is ............................................................ 84 Building an algorithm .......................................................................... 85 Letting an algorithm loose on the markets....................................... 88 Chapter 8: Grasping Standard Order Types 93 Identifying the Standard Order Types ........................................................ 94 Comprehending price time priority .................................................. 94 Gobbling up everything: At-market orders ....................................... 95 Setting the price on a matching trade: Limit orders ....................... 98 Managing risk: Stop orders ................................................................. 99 Identifying Advanced Standard Order Types .......................................... 101 Hiding behind the full amount: Iceberg orders .............................. 101 Wanting it now: Fill or kill orders .................................................... 103 Executing only a portion: Immediate or cancel orders................. 104 Dark Pools & High Frequency Trading For Dummiesviii Chapter 9: Identifying the Special Order Types 105 Getting a Hold of the Basics of Special Order Types .............................. 105 Eyeing their characteristics.............................................................. 106 Differentiating between routable and non-routable orders ......... 107 Providing Firms with Rebates: Post-Only Orders .................................... 108 Moving to the Next Level: Hide and Not Slide Orders ............................ 109 Getting the Best Possible Price: Peg Orders ............................................ 111 Lining up first: Primary peg orders ................................................. 111 Buying based on offer price and selling based on bid price: Market peg orders ................................................... 113 Matching in the middle: Midpoint peg orders ............................... 113 Executing Quickly: Intermarket Sweep Orders (ISOs) ............................ 114 Chapter 10: Delving into High Frequency Trading 119 Tackling the Definition of High Frequency Trading ................................ 120 Eyeing HFT: What it’s all about? ...................................................... 120 Recognising characteristics of high frequency traders ................ 124 Examining what high frequency traders do ................................... 126 Predicting the Future of HFT ...................................................................... 129 Technology — staying ahead of the times ..................................... 130 Markets — looking for new venues ................................................. 130 Legislation — preparing for future regulations ............................. 131 Academic study — listening to the whizzes ................................... 132 Chapter 11: Understanding Key High Frequency Trading Strategies 133 Scalping for Your Pennies .......................................................................... 133 Peering into the world of scalping ................................................... 134 Identifying what can go wrong with scalping ................................. 136 Scalping the automated route .......................................................... 137 Pinging to Gather Valuable Information ................................................... 138 Identifying what pinging does .......................................................... 139 Examining whether pinging is fair ................................................... 139 Looking at pinging in action ............................................................. 140 Gaming like a Casino ................................................................................... 142 Manipulating quotes .......................................................................... 142 Taking advantage of prior knowledge: Front running ................... 144 Part IV: Being Aware of the Risks of Dark Pools ......... 147 Chapter 12: Jockeying Too Much for Position 149 Understanding How Front Running Impacts Your Investments ............ 149 Looking at insider information ......................................................... 150 Having priority access to information ............................................ 151 ixTable of Contents Feeding the news data quickly ......................................................... 153 Leaking news ...................................................................................... 153 Locking up the news .......................................................................... 154 Examining Order Cancellations ................................................................. 157 Gathering information ....................................................................... 158 Stuffing quotes ................................................................................... 158 Playing games ..................................................................................... 159 Identifying the Impact of Slippage ............................................................. 159 Knowing What You Can Do to Mitigate These Risks ............................... 160 Chapter 13: The Ins and Outs of Flash Crashes 163 Grasping How Flash Crashes Happen ....................................................... 163 Blaming the news flow ...................................................................... 164 Holding humans responsible............................................................ 164 Computer programming loops ......................................................... 165 Eyeing How Flash Crashes Spook the Whole Market .............................. 166 Flash crashes draining liquidity ....................................................... 167 Going from a lively market to a ghost town: Volume isn’t relevant ..................................................................... 167 Examining the Greatest Flash Crash of All Time ..................................... 168 The perfect storm triggered ............................................................. 168 Theorising about the causes ............................................................ 169 The SEC Speaks: The Official Version of the 2010 Flash Crash.............. 170 Noting the market’s appearance ...................................................... 170 Identifying the participants .............................................................. 172 Tracking the 2010 Flash Crash, Moment by Moment.............................. 174 Criticising the SEC’s Report ....................................................................... 176 Considering an Alternative Version of the 2010 Crash ........................... 177 Finding the exact moment ................................................................ 178 Blaming HFT ....................................................................................... 178 Analysing a Flash Crash .............................................................................. 179 Part V: The Part of Tens ............................................ 181 Chapter 14: Ten of the Best Dark Pool/HFT Websites 183 Banker’s Umbrella ....................................................................................... 183 Haim Bodek .................................................................................................. 184 Themis Trading ............................................................................................ 184 Scott Patterson ............................................................................................ 185 Zero Hedge ................................................................................................... 185 CFA Institute ................................................................................................. 186 Nanex ............................................................................................................ 186 Able Alpha .................................................................................................... 187 The Trading Mesh ....................................................................................... 188 Healthy Markets ........................................................................................... 189 Dark Pools & High Frequency Trading For Dummiesx Chapter 15: Ten Ways to Swim Safely in Dark Pools 191 Watching the Bid Offer Spread Action ...................................................... 191 Checking to See Whether Your Market Order Slips ................................ 192 Identifying Changes in the Bid Spread ...................................................... 192 Spotting 100 or 200 Block Orders in the Order Book.............................. 193 Checking for Your Limit Number in the Order Book .............................. 194 Verifying the Stock’s Spread ...................................................................... 194 Recognising Flash Crashes ......................................................................... 195 Reading a Tick-by-Tick Chart ..................................................................... 196 Talking to Your Broker ............................................................................... 196 Perusing the Executed Orders ................................................................... 197 Chapter 16: Ten Common Algorithmic Strategies 199 Market Making ............................................................................................. 199 Getting Liquidity Rebates ........................................................................... 200 Deviating from the Norm with Statistical Arbitrage................................ 201 Catching the Short-term Momentum ........................................................ 202 Employing Latency Arbitrage .................................................................... 202 Following the News ..................................................................................... 203 Igniting Momentum ..................................................................................... 203 Combining a Dark Pool and Lit Markets ................................................... 204 Factoring in the Participation Rate ........................................................... 205 Weighting for Time ...................................................................................... 205 Chapter 17: Ten Things to Know About Market Microstructure 207 Market Access Speed .................................................................................. 208 Order Types ................................................................................................. 208 Networks ....................................................................................................... 209 Algorithms .................................................................................................... 210 Fragmentation .............................................................................................. 210 Order Routing .............................................................................................. 211 Regulation ..................................................................................................... 211 Transparency ............................................................................................... 212 Price Formation ........................................................................................... 212 Market Intermediaries................................................................................. 213 Index ....................................................................... 215

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