Algorithmic Trading and DMA

by Barry Johnson

Algorithmic trading and Direct Market Access (DMA) are important tools helping both buy and sell-side traders to achieve best execution. This book starts from the ground up to provide detailed explanations of both these - An introduction to the different types of execution is followed by a review of market microstructure theory. Throughout the book examples from empirical studies bridge the gap between the theory and practice of trading.- Orders are the fundamental building blocks for any strategy. Market, limit, stop, hidden, iceberg, peg, routed and immediate-or-cancel orders are all described with illustrated examples.- Trading algorithms are explained and compared using charts to show potential trading patterns. TWAP, VWAP, Percent of Volume, Minimal Impact, Implementation Shortfall, Adaptive Shortfall, Market On Close and Pairs trading algorithms are all covered, together with common variations.- Transaction costs can have a significant effect on investment returns. An in-depth example shows how these may be broken down into constituents such as market impact, timing risk, spread and opportunity cost and other fees.- Coverage includes all the major asset classes, from equities to fixed income, foreign exchange and derivatives. Detailed overviews for each of the world's major markets are provided in the appendices.- Order placement and execution tactics are covered in more detail, as well as potential enhancements (such as short-term forecasts), for those interested in the specifics of implementing these strategies.- Cutting edge applications such as portfolio and multi-asset trading are also considered, as are handling news and data mining/artificial intelligence.

Genres: Finance, Nonfiction, Business, Textbooks, Reference, Economics

Paperback

First published February 17, 2010

Reviews

[Jairo Fraga · Rating 4 out of 5]

This book encompass many info on market microstructure, execution of orders and strategies for doing it with less market impact/signaling risk.

Author covers many topics superficially, most of the time to turn back to order execution strategies, for big players who needs to do them with the least market impact possible, describing the usefulness of VWAPs, TWAPs, ISs, POVs, etc, highlighting that there is always a balance between speed and impact, as brokers need to check what is the priority for a given order.

There is a small section for each other topic, like portfolio hedging, arbitrage strategies, news trading, data mining and such.

I consider this book valuable, even if it's a bit old and not too focused on straight forward money making , but certainly one can come up with some additional ideas trying to think how institutions will execute their orders.

Estimated reading time: 14h30m

[Jia · Rating 5 out of 5]

This is a good introductory book on Algo Execution for financial market technologists to gain relevant domain knowledge (which is what I was looking for). I don't think it will be very useful for either retail or institutional investors, because the book is all about execution strategies rather than investment decision making (the title of the book might be slightly misleading, and the author has mentioned the same).
The book gives a good summary of market microstructure and various order types. Then it explains various algos used for execution. I like the way the author classifies the algos into three categories (impact driven, cost driven, and opportunistic). It also provides a useful framework for transaction cost analysis, and how to combine execution strategies with execution tactics. Concepts like portfolio trading, multi-asset trading and short-term predictions were also useful, although they were kept brief.
Since the book was written in 2010, some content is outdated, but the fundamental principles and methodologies are still relevant. It filled many knowledge gaps for me at work, hence giving five stars.

[Andrew Chen · Rating 3 out of 5]

pretty dry discussion of execution trading. although a decent introduction, most material can be learned by just interacting with existing exchanges and/or speaking with individuals in the field. many of the empirical things mentioned are of questionable value given the changes in markets within the past decade.

topics to jog the memory:

some discussion on benchmarking execution algos with TWAP/VWAP, variants such as implementation shortfall, and opportunistic algos that look at other factors like liquidity and volatility.

basic introduction to market structure and microstructure. different order types are mentioned, as well as concepts like hidden liquidity.

[Chris · Rating 2 out of 5]

Not for professionals.

If you’re a student, unemployed, or career-changer looking to learn about this topic, read information from the exchange itself. Once you can connect to an exchange you can do your own empirical studies on the instrument/timing/strategy that interests you. Why not start with "Demystifying Order Types" by KCG, look at who is actually an exchange member, and then get connectivity info from the exchange of your choice and look up prices of direct access.

[Paul Erickson · Rating 2 out of 5]

Falls short of expectations for professionals. Much of the content feels dated, and its practical value is questionable given the evolution in markets. May be more suitable for beginners, and even then, not comprehensive enough...somewhere in the middle. Not sure if it's for professionals or beginners, would benefit from clarification..and updates to stay relevant.

[Shushi · Rating 3 out of 5]

写得有些啰嗦，本书的重点是execution而不是investment，概括来讲就是对于大资金量的投资者怎么下单最有效（多快好省）。

[Nick Black]

jae yang recommendation from this epic thread.

[Jack Gidding · Rating 4 out of 5]

Very comprehensive book. I only wish is was also available on Kindle!

[Shantanu Sharma · Rating 4 out of 5]

Best book on smart order routing and agency high frequency trading strategies

[Simon Bradley · Rating 4 out of 5]

Dry by the nature of its subject, this book comprehensively covers the areas one would expect - a very good option for those in capital markets trading who need a crash course in electronic trading.

[Valters Bondars · Rating 5 out of 5]

9/10