You have probably already heard about such terms as black box, expert advisors, quant (quantitative) trading, and if not, you would do yourself a disservice if you don't do some research about it. When talking about a black box in the domain of trading people refer to tools, usually software, that allow automated trading. It is called a black box because it is not possible to see inside it, or in other words, to understand their mechanism, but in reality, they are nothing top secret. Inside the Black Box will show you the main components of a black box, explaining how they work, what are the advantages and disadvantages and the criticism of their use in the market.
Title: Inside the Black Box
Published: March 2013
Author: Rishi K. Narang
Suitable for:
- All traders with already good trading fundamentals interested, or curious, about trading automation
Main topics:
- Trading automation
- Black box
- Expert advisors
- Quantitative (quant) trading
Content
A black box, sometimes called expert advisor, is a part of bigger topics: trading automation and quantitative trading. These topics are about automated trades made by software using mathematical functions and algorithms.
Inside the Black Box is divided into 4 main parts.
Part 1 is just an introduction to quantitative trading and its application to the markets.
Part 2 will show you the main components of a generic black box, including alpha models, risk models, transaction cost models, portfolio construction models, execution, data and research. All components are explained in detail so that the reader can understand what are the functions, dependencies and connections between components.
Part 3 opens the eyes of a potential investor interested in quantitative trading. The author warns about the risks related to quant strategies, lists the criticism connected to quant trading and explains how to evaluate quants and quant strategies.
Part 4 is dedicated to high frequency trading, in short HFT, a topic that usually goes together with quant trading. High frequency trading is introduced with its basics and divided in
Inside the Black Box has without any doubt a rich, complete, detailed content, its goal is giving you the knowledge to understand how trading automation works and its use in the market. Despite the majority of the examples and references are with stock and index markets the concepts can be applied to any market, including the Forex market.
Writing style
The author of Inside the Black Box does an excellent job in a quite difficult task. Black boxes and quantitative trading are complex concepts, not easy to understand and follow, however the author is able to explain these subjects with a simple language so that also a beginner in quant trading can understand it. The interest and curiosity of the audience are kept high chapter after chapter thank to a easy and engaging style.
Value
For all those traders and investors interested and curious about quant trading and trading automation this book represents a great source of information and knowledge. Complete the reading will allow the reader to better understand the mechanism driving trading automation, the consequences of its use and concepts related to high-speed and high-frequency trading.
Conclusion
Inside the Black Box will take you through the world of automated trading. The author will show you the insides of a black box, explaining what are the main components, their functions and the dependencies between. The book includes also some criticism regarding the use of these techniques, warns the investors about the risks and gives suggestions to evaluate quants and quant strategies. The volume then closes talking about high-frequency and high-speed trading. Easy language and relevant information are the key in this book. This is a must read for anyone interested or curious about automated trading and quant trading.
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