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Algorithmic Trading

  • Academic Year: 2013/2014
  • Prof. Emilio Barone
  • Semester: 1st 
  • Period: from 28/09/2013 to 7/12/2013
  • Total lectures: 10 

Students are required to attend at least 8 lectures to earn 4 credits recognized as other activities.

Course contents

In computerized financial markets, algorithmic trading (also known as algo trading, automated trading, black-box trading or robo trading) is the use of applications which allow the automatic entering of buy or sell (market and/or limit) orders. It is an algorithm developed by programmers that decides crucial aspects of orders such as timing, price and/or quantity.

Algorithmic trading is growing massively – it's cheaper, faster and offers more control than standard trading. It enables financial institutions to ‘pre-think’ the market, executing complex math in real time, and to make the necessary decisions based on a defined strategy.

The cost alone (estimated at 6 cents per share manual, 1 cent per share algorithmic) is a sufficient driver to power the growth of algo trading. According to some estimates, high frequency trading firms alone account for 73% of all US equity trading volume.
To learn how securities are actually traded in financial markets, we will use trading cases (simulations) based on the Rotman Interactive Trader (RIT) platform.
Finance theory will help us to understand the risk/return tradeoff inherent in particular trading strategies.
Excel applications linked to the real-time data feeds from the simulated market will guide our decision-making and allow us to develop effective trading strategies.
These strategies will also be implemented by developing algorithms written in Visual Basic for Application (VBA).

1st lecture

Getting a grip on trading, market vs. limit orders, bid-ask prices, Rotman Interactive Trader (RIT), selection criteria for the Rotman International Trading Competition (RITC).

2nd lecture

Introduction to VBA macros. Social Outcry (live simulation).

3rd lecture

Market microstructure: instructions (RTD function, orders from institutional investors).

4th lecture

Options trading: instructions (arbitrages, delta-neutral strategies).

5th lecture

Commodities case: instructions (producers, refiners, traders).

6th lecture

Market microstructure: competition.

7th lecture

Options trading: competition.

8th lecture

Commodities trading: competition.

9th lecture

Algorithmic trading: testing the programs.

10th lecture

Algorithmic trading: competition.

Calendar of lectures

  Date Time Room
1 Saturday, September 28, 2013 2 p.m. - 5 p.m. 203
2 Saturday, October 5, 2013 2 p.m. - 5 p.m. 203
3 Saturday, October 12, 2013 2 p.m. - 5 p.m. 203
4 Saturday, October 19, 2013 2 p.m. - 5 p.m. 203
5 Saturday, October 26, 2013 2 p.m. - 5 p.m. 203
6 Saturday, November 9, 2013 2 p.m. - 5 p.m. 203
7 Saturday, November 16, 2013 2 p.m. - 5 p.m. 203
8 Saturday, November 23, 2013 2 p.m. - 5 p.m. 203
9 Saturday, November 30, 2013 2 p.m. - 5 p.m. 203
10 Saturday, December 7, 2013 2 p.m. - 5 p.m. 203

Assessment method

Individual computer-based assignments, based on RIT (Rotman Interactive Trader) platform.
Students will be ranked according to the scoring methodology used for the Rotman International Trading Competition.
The main purpose of the system is to reward consistently high performance, i.e. a student who places 8th, 5th, and 10th will have a higher final score than a student who places 1st, 10th, and 35th.

Suggested reference reading material

  • Release Files, Rotman School of Management, University of Toronto
    • Case Brief (CB)
    • Trader's Guide (TG)
    • Case Tutorial (CT)
    • Support Sheet (SS)
  • Algorithmic Trading Case
    • Algorithm 1 (ALGO1) – Arbitrage [CB, CT, SS]
    • Algorithm 2 (ALGO2) – Market Making [CB, CT, SS]
  • Market Microstructure Case
    • Market Microstructure 1 (MM1) – Order Driven Markets [CB, TG, SS]
    • Market Microstructure 2 (MM2) – Liquidity [CB, TG, CT, SS]
    • Market Microstructure 3 (MM3) – Alternative Trading Venues [CB, TG]
  • Options Case
    • Options 1 (OP1) – Puts & Calls [CB, TG, SS]
    • Options 2 (OP2) – Hedging [CB, TG, SS]
    • Options 3 (OP4) – Trading Volatility [CB, TG, SS]
  • Commodities Case
    • Commodities 1 (COM1) – Energy Trading [CB, CT, SS]
  • RIT VBA Introduction – Tutorial [RIT VBA]
  • MICROSOFT (MS), Visual Basic Developer Center
  • VBA Lessons (VBA-L) 1-2, 5-6, 9, 11-12
  • VBA Tutorials (VBA-T) 1-16, 20-21, 24-26, 29