Unit XI – Dinamics of the order book and algorithmic trading

Italian version

Lecturer: Federico Musciotto

We describe the way order books operate with a focus on the analysis of data produced by the Nasdaq US, on the largest stock markets. Specifically, we will present the main features of an order book, such as the distinction between market and limit orders, the bid ask spread, the time to fill and the generic order dynamics. We will then focus on the ITCH format, used within Nasdaq US to deliver the information related to the order book dynamics. We will provide tools for data pre-processing, using libraries publicly available on Github and we will show how to extract and/or compute the main features of this specific order book. We will focus on the large heterogeneity that characterizes the distribution of time to fill and on the ratio between deleted orders and all orders. Empirical studies on the emergence of a networked structure in the interaction between market members will be presented, with an eye on the role of high frequency trading.