Best introduction to trading

What book would you recommend to introduce someone smart and motivated to the basic mechanics of trading?

Things I'm *not* interested in:

1. Technical trading or charting of any kind
2. How to read company accounts
3. Behavioural finance
4. Options trading or other complicated derivatives (yet)

Things I *am* interested in:

1. Mechanics of exchanges (bid/ask spread, limit/market orders, queue position etc)
2. How to backtest a trading strategy
3. Basic economics of trading (e.g. explanation of the major asset classes and trading styles, basis, carry, value vs growth, momentum, liqudity taking/providing, high frequency etc)

Thanks.

Reply 1

ajayhp

3

Best beginner book is:

http://www.amazon.co.uk/Guide-Financial-Markets-Marc-Levinson/dp/1846681731/ref=sr_1_3?ie=UTF8&qid=1357602067&sr=8-3

Have a read of my blog :smile:

Reply 2

President_Ben

15

Original post by haskell

What book would you recommend to introduce someone smart and motivated to the basic mechanics of trading?

Things I'm *not* interested in:

1. Technical trading or charting of any kind
2. How to read company accounts
3. Behavioural finance
4. Options trading or other complicated derivatives (yet)

Things I *am* interested in:

1. Mechanics of exchanges (bid/ask spread, limit/market orders, queue position etc)
2. How to backtest a trading strategy
3. Basic economics of trading (e.g. explanation of the major asset classes and trading styles, basis, carry, value vs growth, momentum, liqudity taking/providing, high frequency etc)

Thanks.

There are no books.

1. Will vary with exchanges, products on the exchange and time. For example, Euribor futures and some index futures are on Liffe. They are completely differently beasts in terms of the matching engine and the extent to which they are brownian motion, thus, changing the way you'd execute. Just think about it.
2. What does trading strategy even mean anymore... some general understanding of complex systems in environments susceptible to shocks just makes this whole question... redundant.
3. If you understand economics at the most basic level, I think you're going to be fine here. If you can grasp why there is alpha, you'll get all of those other things, and if you don't ask yourself why it's possible to make money - you're trying to understand details without a good base.

Reply 3

Teenage Pirate

13

Original post by President_Ben

There are no books.

1. Will vary with exchanges, products on the exchange and time. For example, Euribor futures and some index futures are on Liffe. They are completely differently beasts in terms of the matching engine and the extent to which they are brownian motion, thus, changing the way you'd execute. Just think about it.
2. What does trading strategy even mean anymore... some general understanding of complex systems in environments susceptible to shocks just makes this whole question... redundant.
3. If you understand economics at the most basic level, I think you're going to be fine here. If you can grasp why there is alpha, you'll get all of those other things, and if you don't ask yourself why it's possible to make money - you're trying to understand details without a good base.

You're not really catering to "basic" there.

To the OP:

For an introduction to exchanges and financial instruments: http://www.amazon.co.uk/Introduction-Global-Financial-Markets/dp/0230243096 - yes, basic, if you think that based on this book you have some sort of trading strategy that will make money you need to get your head examined. but at the same time, if you think you're going to make any money without understanding the basics of the most common financial instruments/exchanges, you also need to get your head checked

as for backtesting... should be relatively straight forward? Download data, develop rule, see if your rule works out of sample with price data that you didn't use for developing the rule. That's very basic, fails to account for the fact that there's still a lot of overfitting involved and possible "regime shifts" (your rule might have worked, but doesnt any more) and as such is completely useless but that's how you would go about backtesting a strategy. Very unlikely that you'll make an alpha with a rule.

Reply 4

Teenage Pirate

13

Original post by haskell

3. Basic economics of trading (e.g. explanation of the major asset classes and trading styles, basis, carry, value vs growth, momentum, liqudity taking/providing, high frequency etc)

For this point, after you educate yourself a little bit in finance, http://www.amazon.co.uk/Expected-Returns-Investors-Harvesting-Rewards/dp/1119990726/ref=sr_1_1?s=books&ie=UTF8&qid=1357818857&sr=1-1 is a good resource. Looks at the empirical evidence regarding pretty much every one of the sources of returns you talked about there, the theory on why they exist as well as when you would expect premia for those type of risks to be higher/lower. But it's not a book that you can follow without any prior education.

Reply 5

haskell

OP

Original post by Teenage Pirate

Very unlikely that you'll make an alpha with a rule.

How sure are you?

Reply 6

Teenage Pirate

13

Original post by haskell

How sure are you?

fairly... there are lots of very talented people who would get paid a lot of money if they figured out a way to consistently get alpha who aren't finding alpha in the world

Best introduction to trading

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