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Trading and Exchanges

Market Microstructure for Practitioners

Larry Harris

Publication Date - 24 October 2002

ISBN: 9780195144703

656 pages
7 x 10 inches

In Stock

The only comprehensive volume designed to show how markets work, revealing why some traders profit while others fail


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.


  • The only comprehensive volume designed to show how markets work
  • Reveals why some traders profit while others fail
  • Covers single price auctions, open outcry auctions, and brokered markets limit orders, market orders, and stop orders

About the Author(s)

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.


"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."--TurtleTrader.com

Table of Contents

    1. Introduction
    2. Trading Stories
    Part I: The Structure of Trading
    3. The Trading Industry
    4. Orders and Order Properties
    5. Market Structures
    6. Order-Driven Market Mechanisms
    7. Brokers
    Part II: The Benefits of Trade
    8. Why People Trade
    9. Good Markets
    Part III: Speculators
    10. Informed Traders and Market Efficiency
    11. Order Anticipators
    12. Bluffing and Price Manipulation
    Part IV: Liquidity Suppliers
    13. Dealers
    14. Bid/Ask Spreads
    15. Block Trading
    16. Value-Motivated Trainers
    17. Arbitrageurs
    18. Buy-side Trading Strategies
    Part V: Origins of Liquidity and Volatility
    19. Liquidity
    20. Volatility
    Part VI: Evaluation and Prediction
    21. Liquidity and Transaction Cost Measurement
    22. Performance Evaluation and Prediction
    Part VII: Market Structures
    23. Index and Portfolio Markets
    24. Specialists
    25. Internalization, Preferencing, and Crossing
    26. Competition Within and Among Markets
    27. Floor Versus Automated Trading Systems
    28. Bubbles, Crashes, and Circuit Breakers
    29. Insider Trading

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