Wednesday, September 14, 2011

Market Microstructure

There are several different methods by which orders are submitted, displayed, and matched on real world exchanges.  There are usually three phases in a trading day: the time period before the market opens, the trading day during which the market is open, and then the time after the market closes.  Sometimes, different methods are used in each of the phases.  For example, many exchanges have a pre-opening call auction but continuous trading when the market opens.   There are variations even within each type.  For example, some exchanges display orders in the pre-opening call auction, some don’t.  Some display the “virtual price” (the volume maximizing price given current orders) and some don’t.  Some even have a random closing time.

The FTS Interactive Markets handle a wide range of mechanisms.  For example, you can run a pre-opening call auction followed by a continuous double auction.  You can run order-driven and quote-driven markets.  You can have competing dealers, who can or cannot trade for their own account.  You can even have traders who have to trade out of a position before they can trade for their own account.  You can hide or display the limit order book.  You can run a pure specialist market.  You can also have an “upstairs market.”

All the variations are listed at the link Microstructure treatments (the second part shows how you modify our trading cases to run a variation).  We also have pre-set cases that run through the variations.  Over the years, we have developed many cases for specific instructors; let us know if you want to modify a case.

No comments:

Post a Comment