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'Algorithmic Trading and DMA' is a new book covering the use of algorithms and DMA to enhance execution

Electronic trading has clearly transformed the markets. They have become more competitive, but also more complex. Events like May 6 have helped highlight some of the differences between the increasingly fragmented equities marketplace and the more centralized futures markets. Hopefully, a more unified approach to handling sudden market drops (or spikes) at the individual stock level should improve matters.


More than ever before, successful trading in today's markets requires a thorough understanding of how they work and of the tools which are available to enhance execution. This means understanding tools like Direct Market Access [DMA] and trading algorithms, such as VWAP, as well as Transaction Cost Analysis [TCA].

My recently published book, 'Algorithmic Trading and DMA: An introduction to direct access trading strategies', offers a detailed introduction to the theory and practice of execution strategies using both DMA and trading algorithms. It has attracted good reviews from a range of traders, quants and investors.

Note that this is an introductory guide to these topics, which should take the reader from beginner to a more intermediate level. The focus is on execution, not alpha generation. Arguably the book could have been titled 'Algorithmic Execution', but this term is still not as widely used as algorithmic trading.

The book starts by covering the basics of markets and microstructure, for all the major asset classes, from equities and bonds to derivatives and ETFs. It then moves on to discuss order types and execution algorithms, such as VWAP, implementation shortfall, percent of volume etc. The concepts are illustrated with diagrams rather than code snippets or maths (though there is some maths in there). Simply reading the book won't mean you are able to create your own trading algorithm in a few hours. But it will enable you to fully appreciate the complexity involved, and ensure that you understand the difference between market impact, cost-based and liquidity driven algorithms. The chapter on optimal trading strategies should also help guide you in how best to choose between execution algorithms.  

Transaction cost analysis is covered, as well as a chapter on selecting the optimal trading/execution strategy. There is also a chapter which covers some of the design considerations and infrastructure requirements for algorithmic trading (highlighting the capabilities of the FIX protocol).

More advanced chapters cover portfolio and multi-asset trading, news handling, data-mining and AI.

The appendices provide a recent survey of the world's markets, outlining their support for electronic and algorithmic trading.

My background is software development, working at major brokers for over 12 years, mainly on systems for electronic/algorithmic/portfolio trading and risk analysis.  

The book is published by 4Myeloma Press, printed in the US by createspace.com, and is currently available from amazon.com

The author's net proceeds will be donated to research into multiple myeloma (cancer of the plasma cells). Currently there is no cure for myeloma: it is the second most common blood cancer, but funding for research and support is still a lot lower than other better known cancers, such as leukaemia.

'Algorithmic Trading and DMA: An introduction to direct access trading strategies' by Barry Johnson, (4Myeloma Press; February 2010; $49.99; 978-0956399205; Paperback; 592 pages) Currently it is available from amazon.com. for $39.20.

There is also a dedicated website (www.algo-dma.com) which offers a preview of the book.