Released July 2020

Algorithmic Trading: A Practitioner's Guide

provides portfolio managers, traders, and other finance professionals with in-depth information about how trading algorithms actually work in practice.

The information contained in the book is meant to be accessible to those who actually use trading algorithms and smart routers, and not simply those that design and build them.

 

In addition to covering how the most widely used algorithms work, the book also discusses how to most effectively evaluate algo performance .   

Specifically, the book provides detailed coverage of:

  • Single-order algorithms, such as VWAP, TWAP, POV, and variants of the Implementation Shortfall algorithm.

 

  • Multi-order algorithms, such as Pairs Trading and Portfolio Trading algorithms.

 

  • Smart routers, including “smart market,” “smart limit,” and dark aggregators.

 

  • Trading performance measurement, including trading benchmarks, “algo wheels,” trading cost models, and other measurement issues.

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Reviews for Algorithmic Trading: A Practitioner's Guide

 


"True to its title, Jeff Bacidore's Algorithmic Trading:  A Practitioner's Guide delivers a thorough and practical introduction to the modern world of execution algorithms.  Today's algorithmic landscape is highly technical, varied and intimidating.  Jeff brings a unique combination of theoretical knowledge and years of practical experience building and using algos in a number of different contexts;  as a result, he provides an incredibly accessible framework from which to evaluate algo choices.  Are dark pools useful?  When should I choose a VWAP algo instead of an algo?  How do portfolio algos work?  How important is routing versus timing and placing of child orders?  How can I measure the efficacy of execution across various choices?  This book offers excellent heuristics to address these questions and almost any other practical question execution traders and portfolio managers face today.  I highly recommend this book to anyone who wants to understand the execution algorithmic landscape."
 
- Mark Carhart,  Chief Investment Officer and a founding partner of Kepos Capital, former Partner and Co-Chief Investment Officer of the Quantitative Investment Strategies Group at Goldman Sachs Asset Management, and namesake of the Carhart four-factor model.

 

"In Algorithmic Trading, Jeff Bacidore takes us from the simplest order splitting rules to the advanced workings of opportunistic strategies and smart order routers. Drawing on his deep experience as a designer and user of algorithms, he presents a comprehensive framework for classifying them and exploring their features. In the process, he addresses many of the fundamental questions: What sorts of problems are algorithmic strategies trying to solve? What trade-offs govern the selection and use of particular algorithms? What are their limitations? How do we measure their performance? The exposition deftly combines the institutional realities of markets, the economic intuitions behind the strategies, and numerical examples that illustrate their use. The reader will come away with an expanded appreciation and comprehension of how our modern financial markets actually operate."
 
- Joel Hasbrouck, Professor of Finance and Kenneth G. Langone Professor of Business, Stern School of Business, NYU.
 
 
"I have taught trading and markets for nearly twenty years. Bacidore's book will allow me to replace a hodgepodge of industry white papers and blog posts on algorithms, smart order routing, and performance evaluation with a self-contained document that places each of these tools in perspective. The book presents material in a way that makes it assessable to both students and practitioners. My expectation is that professors teaching trading and markets will make Algorithmic Trading: A Practitioner's Guide required reading. Thanks for writing this book!" 
 
- Robert Battalio, Professor of Finance and the William and Cassie Daley Department Chair, Mendoza College of Business, University of Notre Dame.

 


"Great job!  This book provides a unique perspective on the fundamentals of institutional trading absent from any other book.  The book is a great starter for anyone interested in being part of a trading desk and also provides PMs and analysts with a solid foundation on trading."
 
- Enrico Cacciatore, Senior Quantitative Trader and Head of Market Structure & Trading Analytics, Voya Investment Management

 


Algorithmic Trading is one of the select few books that is both conceptual and practical. The content synthesizes Jeff's vast experiences working at the NYSE, leading brokerages and a sophisticated quant fund, as well as currently consulting numerous institutional clients at all stages of the investment process. There are earlier excellent publications on this topic as well, but as global markets constantly evolve the reader will undoubtedly benefit from the up-to-date information and also from a thought-provoking overview of explosive market electronification across asset classes and geographies over the past two decades. 
 
Being a current practitioner in the field as well as an educator, I thoroughly enjoyed the book's intuitive framework and the healthy dose of concrete and thoughtful examples. Numerous issues/caveats/pitfalls that any algo quant faces while developing modern trading strategy are carefully listed and discussed.  A broad audience will enjoy the book, and I think it will be especially valuable to any junior quant coming out of school with an advanced degree, who, after a brief first glance may think building a trading strategy is rather trivial. It is not, far from it in fact. Literally every decision is a trade-off which needs to be understood, calibrated, and also maintained going forward, ideally via some dynamical self-correcting mechanism. This book helps understand the set of problems and common solutions taken by practitioners. I was also happy to read through chapters dedicated to evaluation of trading strategies. The book dispels a host of misconceptions, crude simplifications, and offers the reader a clear sound framework.
 
- Dmitry Rakhlin, Head of Systematic Trading / Portfolio Manager, Goldman Sachs Asset Management, and Adjunct Professor, Baruch College.

"This book is one of the best and most practical guides to Algorithmic Trading out there. Through clear examples and concise explanations, it provides a powerful overview of the most relevant algorithms in use today. This book should be on the mandatory reading list for anyone involved with systematic execution - it is on ours."  

 

- Anton Katz, CEO and co-founder of Talos Trading and former Head of Trading Technology, AQR.

"This is a remarkable book for anyone who wishes to gain a better understanding of algorithmic trading. Jeff Bacidore's extensive knowledge and years of experience of working at leading buy-side and sell-side institutions led to the creation of this comprehensive guide, bridging the gap between theories and practice and covering all aspects of execution algorithms and of electronic trading in general."
 
- Di Wu, Head of Execution Services, Multi-manager hedge fund

"As a current algorithmic trader at a major institutional buy-side firm that utilizes execution algorithms for 80% of our trading, I highly recommend this book for both experienced trading veterans and those new to the industry. This book is comprehensive on the major topics and provides the right amount of detail for all audiences, providing a training guide for novices or a valuable reference for trading veterans requiring clarity on a specific topic. The early chapters offer clear explanations on the foundational concepts of trades, quotes, auctions, lit venues, dark pools and more before leading to more complex subjects on implicit trading cost, opportunity costs, information leakage and the often overlooked and misunderstood adverse selection topic that many professionals fail to understand to their peril. After a comprehensive review of today's execution algorithms, Bacidore offers a deep dive into smart order routers that will appeal to technical professionals before finishing with my favorite topic, performance measurement, that every trading professional must understand. If you want to learn about trading algorithms or need a desktop reference for specific topics written by an industry expert at the top of their field, buy this book. As an experienced algorithmic trading professional, I guarantee you will benefit from Bacidore's wealth of expertise he shares in his book."

  

Mark Gurliacci, Senior Quantitative Trader, Large investment management firm.