Mathematical Foundations of Realtime Equity Trading. Liquidity Deficit and Market Dynamics. Automated Trading Machines.

42 Pages Posted: 27 Oct 2015 Last revised: 5 Dec 2016

Date Written: September 13, 2015

Abstract

We postulates, and then show experimentally, that liquidity deficit is the driving force of the markets. In the first part of the paper a kinematic of liquidity deficit is developed. The calculus-like approach, which is based on Radon-Nikodym derivatives and their generalization, allows us to calculate important characteristics of observable market dynamics. In the second part of the paper this calculus is used in an attempt to build a dynamic equation in the form: future price tend to the value maximizing the number of shares traded per unit time. To build a practical automated trading machine P&L dynamics instead of price dynamics is considered. This allows a trading automate resilient to catastrophic P&L drains to be built. The results are very promising, yet when all the fees and trading commissions are taken into account, are close to breakeven. In the end of the paper important criteria for automated trading systems are presented. We list the system types that can and cannot make money on the market. These criteria can be successfully applied not only by automated trading machines, but also by a human trader.

Keywords: market dynamics, liquidity deficit

JEL Classification: E30, F17

Suggested Citation

Malyshkin, Vladislav and Bakhramov, Ray, Mathematical Foundations of Realtime Equity Trading. Liquidity Deficit and Market Dynamics. Automated Trading Machines. (September 13, 2015). Available at SSRN: https://ssrn.com/abstract=2679684 or http://dx.doi.org/10.2139/ssrn.2679684

Vladislav Malyshkin (Contact Author)

Ioffe Institute ( email )

Politekhnicheskaya 26
St Petersburg, 194021
Russia

Ray Bakhramov

Forum Asset Management LLC ( email )

733 Third Avenue
New York, NY 10017
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
180
Abstract Views
1,659
Rank
301,996
PlumX Metrics