Algorithmic Trading: An Introduction and Preliminary Experimental Results

Algorithmic robot trading involves computer programmes for placing orders in financial markets. More than half of all transactions in financial markets involve algorithm traders. Algorithm traders have been thought of being responsible for recently observed flash crashes, i.e. instances when the market crashes and instantly recovers.

A common function of algorthmic trading is to profit from arbitrage, but little is known about the impacts of such trading algorithms in the market. By exploiting riskless arbitrage or statistical arbitrage in financial markets, arbitrage trading algorithms in theory instate efficiency and eventually establish no-arbitrage conditions in a market. A natural starting point for experimental finance research is the study of the impact of arbitrage bots in the market.

The presentation introduces to algorithm trading, advanced results from the financial literature and recent results from experiments.