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Books on Market Microstructure

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The market microstructure of financial markets is a fascinating field: the old customs for trading of financial assets and contracts had been codified on computer algorithms, allowing for their execution at sub-luminal speed. The analysis of market microstructure, through stylized and econometric models, is an overlooked but necessary skill for the high frequency trader to survive in an ever-changing environment, to better understand the dynamics of price formation in financial markets and how the most seemingly innocuous of the rules could alter the short-run behavior of securities prices.

It’s worth recollecting the strengths and weaknesses of the fundamental books of the field here since I’ve read all of them and each one offers an interesting point of view of the subject. And reading at least two of the better would be an excellent introduction to the specialized literature:

  • [amazon_link id=“0195144708” target=“_blank” ]Trading and Exchanges: Market Microstructure for Practitioners[/amazon_link]. Excellent introductory textbook on how financial instrument trading works, comprehensive yet accessible to every public. It offers a high-level, non-technical and non-quantitative, recollection of insights of the different institutions, incentives and techniques of all the market players, resulting from years of experience of its author, as well as structural and regulatory issues, plus a stylized overview of the most common microstructure effects. The only negative aspect is that it’s almost a decade old and, even if fundamental market microstructure didn’t change much, technology really did.
  • [amazon_link id=“0631207619” target=“_blank” ]Market Microstructure Theory[/amazon_link]. The classical introduction to microstructure theory, now dated, provides an excellent mathematical introduction to the field for the researcher through a systematic presentation of the basic models and results.
  • [amazon_link id=“026262205X” target=“_blank” ]Microstructure Approach to Exchange Rates[/amazon_link]. This book covers FX market microstructure all the way through theoretical and empirical models. Although dated, it’s indispensable to understand the idiosyncratic nature of exchange-rate markets.
  • [amazon_link id=“0195301641” target=“_blank” ]Empirical Market Microstructure[/amazon_link]. Brief, updated and quantitative book, perfect for an intensive intermediate course on equity market microstructure with an emphasis on the econometrics, but neither on the real world implementation nor technical issues.
  • [amazon_link id=“0521867843” target=“_blank” ]The Microstructure of Financial Markets[/amazon_link]. The most updated book of this list, it’s perfect for an advanced graduate course with an emphasis on the empirical models of market microstructure. Recommended for its in-depth treatment of transactions costs and their effects on return on investment.

What I’ve Been Reading

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  • [amazon_link id=“0981678017” target=“_blank” ]The Busy Coder’s Guide to Advanced Android Development[/amazon_link]. Book for  a quick start on Android development, full of examples and straight to the point, it’s also worth mentioning for their innovative Books-as-a-Subscription service (BaaS) that provides updates and new titles for $40 per year.
  • [amazon_link id=“0470697164” target=“_blank” ]LTE, The UMTS Long Term Evolution: From Theory to Practice[/amazon_link]. An extensive, comprehensive and in-depth tour-de-force on the LTE standard by some of the contributors of its standardization. An invaluable tool for anyone LTE-related, it will be the most authoritative source for the years to come: it has reminded me the [amazon_link id=“0201633469” target=“_blank” ]TCP/IP Illustrated series[/amazon_link] while reading it. The best: the parts describing the physical layer (OFDM and MIMO), the most innovative part of the standard and its real lifeblood. Every standard should have a book like this one written for it.
  • [amazon_link id=“1598220616” target=“_blank” ]The Rootkit Arsenal: Escape and Evasion in the Dark Corners of the System[/amazon_link]. In the last decade, there has been an explosion of computer security related books. From time a time, a title really stands up from the rest, and this must be it for 2009: Stuxnet developers should have read this one before coding their second-rate worm. Caveat: no source code available for download.

What I’ve Been Reading

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  • [amazon_link id=“1849681627” target=“_blank” ]Microsoft Forefront Unified Access Gateway 2010 Administrator’s Handbook[/amazon_link] and [amazon_link id=“0735626383” target=“_blank” ]Microsoft Forefront Threat Management Gateway Administrator’s Companion.[/amazon_link] Detailed tech-guides and reference books about two of the most all-encompassing security solutions. It’s good to know that Microsoft keeps on producing some great tools even if they aren’t going after a billion-dollar market.
  • [amazon_link id=“849280811X” target=“_blank” ]Oráculo Manual y Arte de Prudencia (Spanish Edition), Baltasar Gracián[/amazon_link]. An eternal collection of 300 commented aphorisms and maxims, distilled from his previous works, free from argumemtum ad verecundiam, ad antiquitatem & ex silentio. So great that its style inspired later works from Schopenhauer and Nietzsche.

What I’ve Been Reading

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  • [amazon_link id=“1593156456” target=“_blank” ]Mobilize: Strategies for Success from the Frontlines of the App Revolution[/amazon_link]. Centered on the iOS platform, it’s a good guide from an experienced marketeer on how to profit from the land grab that is mobile application development. A more quantitative approach would have fit better. Very useful.
  • [amazon_link id=“0399535934” target=“_blank” ]The Phone Book: The Curious History of the Book That Everyone Uses But No One Reads[/amazon_link]. A history of the impact on society of the phone book: it was as important as the Internet is today, introducing a whole new way to relate to the world. Just like now, if you weren’t on the phone book, you didn’t exist. Déjà vu all over again.
  • [amazon_link id=“0321549252” target=“_blank” ]Surreptitious Software: Obfuscation, Watermarking, and Tamperproofing for Software Protection[/amazon_link] Written in an academic way, but full of practical examples  at the same time, you’ll love this one if you, like me, write meta-code, code that does funky things to other code. Loved the “Dynamic Watermarking”  and “Hardware for Protecting Software” chapters.
  • [amazon_link id=“0201038048” target=“_blank” ]The Art of Computer Programming, Volume 4A: Combinatorial Algorithms, Part 1[/amazon_link]. Archimedes started combinatorics 2200 years ago, and Knuth wrote the definitive review of its algorithms. Beautiful typesetting, timeless selection of algorithms and full of examples to master the subject: a masterwork.