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Evolutionary of Trading

After the tumultuous period of the financial crisis in 2008, the Capital Market has entered into a new era. Algorithmic trading strategies, together with statistical methods and artificial intelligence, are of increasing importance in this new era.

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To demonstrate how market participants effectively implement tradings strategies, Haynesville Consulting organised a 2-hour Algorithmic Trading Workshop at the London School of Economics.

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The aim of the Workshop is to assist university students understand trading liquidity, market inefficiency and various roles on the trading floor.

Stock Market Graph

Trading Fundamentals

Trading strategies, systematically pricing financial products, are implemented in either electronic trading platforms or conventional "Open-Outcry System". Bids and offers are made in such platforms providing all participants a chance to compete for the order with the best price.

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Prior to the occurrence of electronic trading channels, buyers and sellers implement specific trades in the following Trading Floors:

  • Equity (Stock)

  • Fixed Income (Rates)

  • Foreign Exchange (FX)

  • Commodities

  • Credit

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Open outcry was a way of trading channels, involving shouting and use of hand signals to communicate information of buy and sell orders. As shown the Figure below, the hand signals consist of palm facing in (buy) and palm facing out (sell) gestures.

Stock Exchange

Roles on a Trading Floor

The Workshop involves trading one asset, the actual price of which is an average of 10 cards (i.e. Asian option). Each group is given one card at the start, and shall not be disclosed to other groups (i.e. market inefficiency). The game consists of 3 sessions. At each session, 1 new card will be released, and the last card will be disclosed at the end.

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To be successful in a trading session, different roles within the same group should work closely together:

  • Traders: determine the bid / ask spread, offer the price, and implement the trade

  • Quants: calculate the market fair price

  • Operations: check the trading volume, sign the document at the Exchange

  • Finance: calculate the profit or loss of each trading session

Trading Floor
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