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Dark Pools and High Frequency Trading For Dummies by Jay Vaananen

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Chapter 17

Ten Things to Know About Market Microstructure

In This Chapter

arrow Drilling down into the microstructure of the markets

arrow Making market microstructure work for you

arrow Understanding market fragmentation

As markets have got faster, you’d think that trading has got easier: that hurdles and complexities disappear as trade execution becomes quicker and quicker. In fact, the opposite has been the case. As markets have gained speed and technology has advanced, the business of making a stock transaction has become more complex.

Market microstructure is concerned with how trades are executed in the markets. Speed isn’t the only consideration, although it’s important. Market microstructure is also concerned with how data is transferred from one place to another, what route it takes, what computer languages it uses, and the tools and infrastructure required to move the data about.

High frequency trading (HFT) has played a major role in the forming of modern market microstructure. The goal of HFT is to be first in line in the order book whenever a high frequency trader wants to make a trade. Technological advances have been driven by the demand for speed and fast execution by high frequency ...

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