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The Equity Trader Course

The Equity Trader Course

Robert A. Schwartz, Reto Francioni, Bruce W. Weber

ISBN: 978-0-471-74155-8

May 2006

432 pages

Select type: Hardcover


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Get a comprehensive course in equity trading with this book and CD-ROM combination. Providing in-depth insight and practical knowledge, the authors walk you through the dynamics of this market and the mechanics of trading -- from entering a trade to following the market and profitably exiting a position. The companion TraderEx CD-ROM features a computer-driven trade simulator that offers hands-on experience in making tactical trading decisions in different market situations. Each chapter of the book works in combination with the simulation software so both novice and experienced traders learn to be versatile and successful in their purchasing and selling decisions.

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Foreword Alfred R. Berkeley III, CEO, Pipeline Trading Systems LLC.


CHAPTER 1 Getting a Grip on Trading.

Order Arrival.

The Bid-Ask Spread.

The Liquidity Dimension.

Overview of TraderEx.

Getting Started with TraderEx.

From the Contributors 38

Using Trading Simulations on an Academic Trading Floor: Where the Rubber Meets the Road (Richard D. Holowczak).

Reflections of a Finance Professor (Michael S. Pagano).

On-the-Job Training at Mako (David Segel).

CHAPTER 2 All About Liquidity.

From Information to Prices.

Defining Liquidity.

Liquidity and Transaction Costs.

Intraday Price Volatility, Price Discovery, and Quantity Discovery.

The Origins of Liquidity.

Illiquidity’s Footprints in the Transaction Records.


From the Contributors.

Satisfying Institutional Traders’ Quest for Liquidity (Peter Jenkins).

Giving Customers Greater Choice in Trade Execution: The NYSE Hybrid Market (John A. Thain).

Market Reaction to New Information (Claudio Werder and René Weber).

CHAPTER 3 How to Use Limit and Market Orders.

The Order Book and the Market.

Order Types.

A Look at the Market.

A Reservation Price.

Cost of Placing a Limit Order.

Compensation for Placing a Limit Order.

Should You Submit a Limit Order or a Market Order?

How Should You Price Your Limit Orders?

The Bid-Ask Spread.

Handling a Large Order.

An Option Trader’s View of Limit Orders.

The Big Picture.

From the Contributors.

The Emergence and Growth of an Electronic Order-Driven Market (Gerald Putnam).

The Use of Limit and Market Orders (Rainer Riess and Uwe Schweickert ).

Order-Driven Markets: The Route to Best Execution (Jean-François Théodore).

Exercises 158

CHAPTER 4 Choosing between Continuous Trading and a Periodic Call Auction.

How is a Call Auction Used?

Call Auctions and Market Structure.


Order Handling Differences.

NASDAQ’s Crosses.

How to Submit an Order to a Call Auction.

A Reality Check.

Option Value of Limit Orders in a Call Auction.

Time to Call the Market.

From the Contributors.

A Call Is Not a Call Is Not a Call (Alfred R. Berkeley III).

The NASDAQ Crosses: A View from the Inside (Frank M. Hatheway).

Call Market Trading—It’s About Time (James Ross).


Appendix to Chapter 4: Further Details on Clearing Price Determination.

CHAPTER 5 Market Intermediaries: Nuts ’n’ Bolts and Challenges.

Emergence of the Modern Markets.

Intermediation on the NYSE.

Intermediation at NASDAQ.

Overview of Market Maker Operations.

Order Handling and Transparency in a Dealer Market.

Competition and Preferencing.

Price Improvement.

The Future of Intermediaries in Hybrid Markets.

From the Contributors.

NASDAQ Market Makers in the NASDAQ Stock Market (Robert Greifeld).

Electronic Intermediaries for Block Trading (Martin Reck ).

The Importance of Market Making (Frank L. Romanelli).

CHAPTER 6 The Road to Technical Analysis and Algorithmic Trading.

Dynamic Price Discovery.

Quantity Discovery.

Technical Analysis.

Algorithmic Trading.

From the Contributors.

Algo History at TIAA-CREF (Paul L. Davis).

The Complexity of Market Information (John H. Porter).

The Mood of a Market (David Segel ).

Appendix to Chapter 6: Order Handling and Market Timing on a Trading Floor.

CHAPTER 7 Performance Measurement.

Three Simple Performance Measures.

Transaction Cost Analysis.

Risk Management.

Best Execution.

Measuring the Performance of a Market Center.

Best Execution and Performance Reconsidered.

From the Contributors.

The Quest for Trading’s Holy Grail—Alpha! (Marcus Hooper).

How Intelligent Traders Enhance Their Skills with a TCA Report (Wayne H. Wagner and Melissa Spurlock).

Appendix to Chapter 7: Explaining Risk Aversion.

APPENDIX Prices and Returns.

The Measurement of Returns.



The Intervaling Effect.

About the Authors and Contributors.


About the CD-ROM.


“Explains in plain English the trading process in stock transactions while providing a clear explanation of the various market structures available in the stock market….an excellent read for anyone interested in learning how stocks are traded, the participants in the equity markets, and the issues faced by institutional traders as they attempt to leave the smallest footprint in buying and selling large share quantities. I recommend it to both new traders as well as experienced traders who are undergoing fast change in their profession.”—David Krell, President & CEO, International Securities Exchange

"Vision is not enough when writing about the complex world of equity trading - clear writing and compelling delivery are also required. This book has all three." —Walter Kielholz, Chairman of the Board of Directors, Credit Suisse Group

“This authoritative and fascinating book is must reading for all professional investors, not just traders.”—Peter L. Bernstein, author of Capital Ideas and Against the Gods

“…should be required reading for traders, old and new....Ignore this book at your investing peril!” —Theodore R. Aronson, CFA, Aronson+Johnson+Ortiz, and former chair of the Board of Governors, CFA Institute

“…tomorrow’s traders can benefit from this comprehensive overview of stock trading.” —Matt Andresen, President, Citadel Execution Services, and former CEO, Island ECN

“…guide[s] the reader toward the discipline of risk management and the goal of best execution.” —Ralph J. Acampora, CUT, Managing Director, Knight Research, Knight Equity Markets, L.P.

“An excellent update on the theory and practice of equity trading….a highly useful reference for today’s professionals.”—Dr. Josef Ackerman, Chairman, Group Executive Committee, Deutsche Bank AG

“…superbly illuminates the picture for both the novice and the seasoned trader.” —Peter Forstmoser, Chairman, Swiss Re, University Zurich

“…[a] wonderfully insightful book.” —Dr. Stefan Jentzsch, Member of the Board of Managing Directors, Dresdner Bank AG

“…a clear, concise, and compelling assessment of the equity trading environment'" —Andrew M. Brooks, Vice President, Head of Equity Trading, T. Rowe Price Group

“…one of the best guides available through the intricate environment that we face today.” —Kurt Viermetz, Chairman of the Supervisory Board, Hypo Real Estate Holding AG and Deutsche Börse AG

“…impressively fills a critical need." —Raymond J. Bär, Chairman of the Board of Directors, Julius Bär Holding AG

“…represents a unique opportunity to gain deep insights in to what is a cornerstone of the American economy; stocks and the market.”—John C. Giesea, President & CEO, Security Traders Association