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Trading and Exchanges: Market Microstructure for Practitioners [Hardcover]

Larry Harris
4.3 out of 5 stars  See all reviews (36 customer reviews)

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Book Description

October 24, 2002 0195144708 978-0195144703 First, first printing
This book is about trading, the people who trade securities and contracts, the marketplaces where they trade, and the rules that govern it. Readers will learn about investors, brokers, dealers, arbitrageurs, retail traders, day traders, rogue traders, and gamblers; exchanges, boards of trade, dealer networks, ECNs (electronic communications networks), crossing markets, and pink sheets. Also covered in this text are single price auctions, open outcry auctions, and brokered markets limit orders, market orders, and stop orders. Finally, the author covers the areas of program trades, block trades, and short trades, price priority, time precedence, public order precedence, and display precedence, insider trading, scalping, and bluffing, and investing, speculating, and gambling.

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Trading and Exchanges: Market Microstructure for Practitioners + Algorithmic Trading and DMA: An introduction to direct access trading strategies + Inside the Black Box: A Simple Guide to Quantitative and High Frequency Trading
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Editorial Reviews


"Knowledge and information about the stock market are vital tools for investors as they shape their strategies and portfolios. Professor Harris's truly unique, unassailably practical, and plain English presentation offers investors, newcomers and veterans alike, valuable and easy to understand insights that heighten individual confidence and the opportunity for success. A smarter, more informed investor is a more discriminating and successful investor."--Dick Grasso, former Chairman and CEO, New York Stock Exchange

"The inner (and outer) workings of the trading mechanism is a highly complex subject with often unappreciated relevance for anyone who has virtually any involvement in the financial markets. Writing with a clarity and a pace that Hemingway would have applauded, Larry Harris shines a bright light on both the latest theory and current practices, and he then probes deeply and thoughtfully into their implications for market participants."--Martin L. Leibowitz, Ph.D., Managing Director of Morgan Stanley and former Vice Chairman and Chief Investment Officer, TIAA-CREF

"Professor Harris has written an extraordinary book detailing the complex workings of modern equity markets. This book provides a wealth of institutional detail, and an integrated framework for understanding how markets actually work. It will surely be a standard reference book for all who work in or study the markets for many years to come."--Maureen O'Hara, Acting Director in Graduate Studies at the Samuel Curtis Johnson Graduate School of Management at Cornell University

"Larry Harris is arguably the foremost expert on market microstructure. ... With his illustrious background you might suspect he knows of what he speaks. After you read this book, you will be convinced of it. Trading and Exchanges is the most comprehensive treatment of market microstructure I have seen. ... Harris offers something for everyone with an interest in trading. ... [He] presents his subject matter, which could be so daunting to many of us, in a surprisingly accessible and entertaining style. Despite this engaging style, he does not compromise on breadth or depth. ... Trading and Exchanges is indispensable for anyone who cares about trading. What's more, it is entertaining."--Journal of Investment Management

"The people who trade securities and contracts, the marketplaces where they trade, the rules that govern trading, and differences between investing, speculating, and gambling are all addressed in this volume.--Business Horizons

". . .Trading and Exchanges is about as comprehensive a book about the markets and trading as you are going to find. . .[T]his book is . . .organized so that you can flip to any topic and be certain of in depth coverage and accessible explanations supported by graphs and tables. Harris touches on just about every aspect of market economics, structure and regulation, from the players. . .to the game. This book is an objective, and more important, practical survey of an area of financial economics that has become increasingly, and needlessly, complex. . . Harris keeps us on the straight and narrow. We are unable to drift into that disingenuous and murky world of trading advice based on personal success, or failure in the markets. . .Whether you are a novice or veteran investor, trader, dealer or broker, Trading and Exchanges cracks the code on practically every facet of market microstructures. It is a trading bible."

About the Author

Larry Harris holds the Fred V. Keenan Chair in Finance at the University of Southern California Marshall School of Business. In July 2002, Professor Harris was appointed Chief Economist of the U.S. Securities and Exchange Commission, where he served until June 2004.

Product Details

  • Series: Financial Management Association Survey and Synthesis Series
  • Hardcover: 656 pages
  • Publisher: Oxford University Press; First, first printing edition (October 24, 2002)
  • Language: English
  • ISBN-10: 0195144708
  • ISBN-13: 978-0195144703
  • Product Dimensions: 10.4 x 7.2 x 1.4 inches
  • Shipping Weight: 2.9 pounds (View shipping rates and policies)
  • Average Customer Review: 4.3 out of 5 stars  See all reviews (36 customer reviews)
  • Amazon Best Sellers Rank: #92,514 in Books (See Top 100 in Books)

More About the Author

Larry Harris holds the Fred V. Keenan Chair in Finance at the USC Marshall School of Business. His research, teaching, and consulting address regulatory and practitioner issues in trading and in investment management. He has written extensively about trading rules, transaction costs, and market regulations. His introduction to the economics of trading, Trading and Exchanges: Market Microstructure for Practitioners (Oxford University Press: 2003), is widely regarded as a "must read" for entrants into the securities industry.

Chairman Harvey Pitt appointed Dr. Harris to serve as Chief Economist of the U.S. Securities and Exchange Commission in July 2002 where he continued to serve under Chairman William Donaldson through June 2004. As Chief Economist, Harris was the primary advisor to the Commission on all economic issues. He contributed extensively to the development of regulations implementing Sarbanes-Oxley, the resolution of the mutual fund timing crisis, the specification of Regulation NMS (National Market System), the promotion of bond price transparency, and numerous legal cases. Harris also directed the SEC Office of Economic Analysis in which 35 economists, analysts, and support staff engage in regulatory analysis, litigation support, and basic economic research.

Professor Harris currently serves on the boards of Interactive Brokers, Inc. (IBKR), the Clipper Fund, Inc. (CFIMX), and CFALA, the Los Angeles Society of Financial Analysts. He is the director of the USC Marshall School Center for Investment Studies and the research coordinator of the Institute for Quantitative Research in Finance (the Q-Group). He is an former associate editor of the Journal of Finance, the Review of Financial Studies, and the Journal of Financial and Quantitative Analysis. Other professional service has included year-long assignments to the U.S. Securities and Exchange Commission and to the New York Stock Exchange immediately following the Stock Market Crash of 1987. Dr. Harris has also worked at UNX, Inc., an electronic pure agency institutional equity broker, and at Madison Tyler, LLC, a broker-dealer engaged in electronic proprietary trading in various markets.

Dr. Harris received his Ph.D. in Economics from the University of Chicago in 1982.

Customer Reviews

Most Helpful Customer Reviews
72 of 76 people found the following review helpful
5.0 out of 5 stars Great content, great writing! December 26, 2002
By A Customer
I have been trading for 8 years. 6 years prop trading, I now run a hedge fund. We make about 10,000 trades/day. I wish I had read this book years ago. I've had to pay Mr. Market a large sum to learn many of these lessons. Larry Harris has written what I consider to be the best book in the field of trading. He covers nearly all topics, from structural & regulatory issues, to descriptions of the players; costs to performance evaluation. Presentation is excellent - the numerous sidebars, tables & graphs serve to illustrate the text. My only complaint is that the book does not take the quantitative side far enough. I recommend a technical appendix plus specific references (perhaps annotating the excellent bibliography) for the mathematically inclined reader.
If you are interested in trading, or curious about the markets, buy and read this book!
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47 of 50 people found the following review helpful
5.0 out of 5 stars The best reference book on trading and exchanges December 10, 2004
This book's title understates its contents and scope: this is a comprehensive guide to how financial instrument trading works. If you ever wondered what happens when you place an order to sell 10 million shares of GOOG (which you may or may not already own), or what transpires when you try to corner the silver market like the Hunt brothers, you'll find all the details in this book. But it's more than that.

For the most part accurate and easy-to-read, the 600-page book also covers issues that are of most importance to traders: where to trade, when to trade, how to trade, and what price to trade at. Very detailed discussions reveal how the various market participants, from exchanges to broker-dealers to moronic traders, fulfill their respective roles in the Great Paper Wealth Game. Entire chapters are devoted to speculators vs. liquidity suppliers. The discussions on how each type of players trade and try to outsmart one another offer terrific insights into the psychology and techniques of market players. Usually tedious topics such as order-matching rules and volatility measures are also covered well here.

This is not a book about how to read stock charts or build sophisticated multi-variate GARCH models to predict volatility. It's also not about how you could become a better gambler - the author says the gambler always loses, so you don't have much hope there.

This practioner's book is about financial markets and its inner workings and the human beings that drive them. If you want one authoritative reference volume on the mechanics of financial markets, this is it.

My only quibble is it's expensive for someone who has to pay for the book out of their own pocket.
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27 of 27 people found the following review helpful
5.0 out of 5 stars Encyclopedic, Yet Readable and Accessible November 22, 2002
If you don't understand how the markets work, want to learn more, and are willing to invest an immodest amount of time and money, this is a book you must read.
Larry Harris is a brilliant contributor to the understanding of markets, and is currently Chief Economist of the Securities and Exchange Commission. This book however, is written as a textbook for the introductory markets class he taught at USC for many years.
Larry's book pulls back the curtains on the mystery and mumbo-jumbo of what happens when investors buy and sell securities. The book is lightly written, with many anecdotes and amusing sidebars, yet presents the latest and best knowledge on how (and why) markets work.
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20 of 21 people found the following review helpful
I'm not a trader. I do occasionally look longingly at high frequency trading positions (stat arb, automated trading; whatever you'd like to call it). This is the book that actually answers all those questions any curious person who has ever made a trade might ask. What happens when you make a trade? What is the mechanics of making a trade? How does liquidity work? What happens if your trade is bigger than the daily volume of the traded equity? How does index arb work? What do flow traders do to make money? What are the different exchanges, and what are their rules? How does GAAP play out in exchanges? What are NASDAQ's idiosyncrasies? Why don't they have an automated auction model out there (they do)? How do traders scalp you when you want to dump a block on the street? Is this legal? This book answers all, and far more.

I don't know how people used to learn this stuff; presumably either by word of mouth, or by losing millions of their employers dollars. I also don't know what motivated Mr. Harris to spill all this wonderful information, but I am very grateful that he did. I almost feel like I should trash talk the book to prevent people from reading it (yeah, some of the information actually is outdated -pffff, like it matters), but enough know of it already I wouldn't gain much edge.

The person who recommended this book to me is generally mentioned in the same breath as the name "Jim Simons," so I have to assume it is as accurate as anything on the market out there. Wonderful, wonderful stuff. Anyone interested in markets should read this from cover to cover.
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15 of 17 people found the following review helpful
5.0 out of 5 stars A wonderful contribution May 24, 2004
I love this book. We used it in a course I took on trading while I was studying for my MBA (in preview course-pack form) and it was one of those experiences that provide a new understanding of things and provide new modes of thinking and understanding. Those are the kinds of experiences are the reasons you go and pay all that money to earn those degrees.
This is not a book about investing, securities, valuation, or the laws around trading. It is a book about traders, what they do, how they do it, where they trade, and even why they trade. It is the most lucid book I have read on that elusive topic of liquidity and its implications in trading and price discovery. It is wonderful in describing the different types of exchanges and how they function.
I found the discussions on the different types of traders, their practices, and the strategies they use to be fascinating. There is a reason the book is subtitles "Market Microstructure for Practitioners" - the thinking of a trader is very different than the buy-and-hold investor. For a trader, long-term can be a few minutes and inventory has powerful implications as does whether the trading is done via and exchange floor or some automated trading system.
Mr. Harris is to be congratulated and thanked for this terrific book.
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Most Recent Customer Reviews
4.0 out of 5 stars Good Read
Great read for someone getting started into the industry and wants to know about the markets. However, a lots of examples especially in the start relate to the old way of... Read more
Published 2 months ago by Rush
5.0 out of 5 stars Best book on the topic? Probably!
This should be required reading for anybody with a 401(k). The author gives a very clear picture (most of the time) of exactly how transactions arise and get processed. Read more
Published 7 months ago by Moral Hazard
3.0 out of 5 stars Trading and Exchanges
Very informative but a very hard read. This book may not be for everyone. So far I've learned a lot from select chapters. Some topics don't interest me.
Published 8 months ago by R. DeSisto
5.0 out of 5 stars Good Overview of Micro and Trading
I liked this textbook - I am an industry professional but I found the book helpful for my FX class. It was easy to read through and gave an excellent overview of the markets.
Published 9 months ago by Wallstreet12
5.0 out of 5 stars Good
Book I have needed for several years. Knowledge is power and this book is filled with information that is vital to all small retail traders.
Published 10 months ago by Bryan C. Hawkins
5.0 out of 5 stars Must Have!
This book is simply a must have for anyone who is interested in Stocks, Futures, Option, FX etc. If someone tells me that they want to know more about the exchanges, I recommend... Read more
Published 10 months ago by Luke
5.0 out of 5 stars Very details
If you want a book that explains in minute detail the process of a trade occurring this it great. Its a hard read with a lot of detail and is not an entertaining story but a very... Read more
Published 11 months ago by P. Maich
2.0 out of 5 stars Not for "Practitioners" ...
I will start by saying that this book is extremely overrated (both here at Amazon and at Elite Trader); in fact, it is so overrated that I find myself fighting the temptation to... Read more
Published 13 months ago by Vaathen
5.0 out of 5 stars perfect
Perfect, brand new and cheap so overall i am extremely satisfied. I will definitely buy again from this amazing site
Published 16 months ago by matteo rondini
2.0 out of 5 stars what does it mean ?!?
I was waiting for a book like ORIGINAL version ! but I have received something which does not have any cover! the book has a partial damaged hard cover. Read more
Published 22 months ago by Reza
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