Books and Resources for Learning Market Microstructure

# Book on market microstructure


# Book on market microstructure












Can I get some recommendations for a book on market microstructure? I'm not looking for some author's questionable methods for trading, I'm just looking for a book that provides me with facts about how order books, closing auctions, order execution, etc. really works.

I'm also NOT looking for the type of depth that a HFT would be interested in. I know that whole books can be written about the various plumbing of a particular exchange. I'm simply looking for a general overview of how exchanges work.

## Answer by Louis Marascio (score 21, accepted)

https://quant.stackexchange.com/a/9921

I've not yet read it, but Lehalle's recent book is bound to be a goldmine of good micro-structure bits and pieces. Market Microstructure in Practice

EDIT: I'm reading the book now, so far it's quite good.

## Answer by lehalle (score 34)

https://quant.stackexchange.com/a/9970

My two favorites books on microstructure are:

- Barry Johnson's Algorithmic Trading and DMA - very good on technological aspects and for an overview of needed implementations;

- L and Laruelle's Market Microstructure in Practice - for common knowledge and understanding of market microstructure and its mechanisms.

Recently, three new books have been published:

- The Financial Mathematics of Market Liquidity: From Optimal Execution to Market Making, by Olivier Guéant - useful for optimal trading in practice, to be read by quants.

- Algorithmic and High-Frequency Trading, by A. Cartea, S. Jaimungal, and J Penalva - useful for a stochastic-control oriented on different optimal trading frameworks, to be read be researchers starting in the domain.



On the theoretical (economical) aspect, you have two good books:

- Vives' Information and Learning in Markets - The Impact of Market Microstructure - for a theoretical overview;

- Foucault et al.'s Market Liquidity: Theory, Evidence, and Policy - more focussed on recent evolutions.

In terms of skills, you need to be able to learn statistics, (stochastic) control and optimization. That for I would consider to read:

- Meucci's Risk and Asset Allocation - of course it is not written explicitly for microstructure, but if I had to learn from scratch multivariate statistics for financial markets, I will definitely use this one.

- you should take a book on stochastic control, take the one you want, but frankly my favorite is Soner's Controlled Markov Processes and Viscosity Solutions. It may be too theoretical for what you need to control a trading algorithm, but it may be the occasion to read a good book on control.

## Answer by Yury Spiridonov (score 14)

https://quant.stackexchange.com/a/9915

Classical book on market microstructure is: Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris. It's a bit outdated (2002) and missing few recent market developments like dark pools etc. but the way it currently is it's already highly recommended reading.

Personally I'm waiting for the next edition of the same book, and surely many others waiting as well (though not sure it will ever be published, even so Larry Harris is still actively engaged in the industry and academy).

The current market microstructure - probably the best source would be academic papers, I'm not aware of recent good books on this topic.

## Answer by PabTorre (score 6)

https://quant.stackexchange.com/a/9919

There is a lot of papers on the subject that tend to stay more up to date than the books (since there's new papers coming out all of the time)... of course no 1 paper will give you the depth of concepts you can take from a book like Harris' but, after reading that book, they can be very helpful for updating the concepts. :)

arxiv is IMHO the best source for such papers... these are a few that came out last year and were pretty interesting...

http://arxiv.org/pdf/1312.0563.pdf

http://arxiv.org/pdf/1312.0514.pdf

http://arxiv.org/pdf/1310.1103.pdf

## Answer by user6953 (score 4)

https://quant.stackexchange.com/a/9926

I'd go with either Anatoly Schmidt's Financial Markets and Trading or Joel Hasbrouck's Empirical Market Microstructure. Both have plenty of math, and that's pretty much required when talking about market microstructure.

## Answer by xyzt (score 2)

https://quant.stackexchange.com/a/54832

I'm reading "Trades, Quotes and Prices: Financial Markets Under the Microscope" and it's fine for me.

## Answer by LazyCat (score 0)

https://quant.stackexchange.com/a/9918

This one covers basics reasonably well: DMA