ICM612: Algorithmic and High Frequency Trading

Module code: ICM612

Module provider: ICMA Centre; Henley Business School

Credits: 20

Level: Postgraduate Masters

When you'll be taught: Summer (vacation) semester

Module convenor: Dr Alfonso Dufour, email: a.dufour@icmacentre.ac.uk

Pre-requisite module(s):

Co-requisite module(s):

Pre-requisite or Co-requisite module(s):

Module(s) excluded:

Placement information: NA

Academic year: 2024/5

Available to visiting students: No

Talis reading list: No

Last updated: 28 May 2024

Overview

Module aims and purpose

Industry participants estimate that 70-80% of equity trades are executed through computers. Market-makers in equity, fixed income and currency markets use algorithms to automatically adjust their quotes. This module reviews the current state of the trading industry and identifies aims, features, regulations, and limitations of three main groups of algorithmic trading strategies: market making, trade execution and statistical arbitrage. Practical seminars are used to demonstrate how to apply trading algorithms to high-frequency data. 

This module will equip the students with a basic knowledge of algorithmic and high frequency trading strategies which are commonly used in the trading industry.  

Module learning outcomes

By the end of the module, it is expected that students will be able to: 

• Explain the concepts of high frequency trading and algorithmic trading 
• Identify the characteristic elements of alternative algorithmic trading strategies 
• Solve simple trade execution problems and develop effective execution strategies 
• Develop tick-by-tick data management skills, apply Excel functions such as Pivot Tables and Solver and basic programming knowledge to solve simple high-frequency trade data problems. 

Module content

Topic 1. Overview of algorithmic trading: definitions, industry trends and trading strategies. 

Topic 2. Insights for working with high-frequency data – features, seasonality, relevant variables, trends and common patterns. 

Topic 3. High Frequency Trading (HFT): definitions and regulation. Presentation of main HFT players and their strategies 

Topic 4. Market making strategy. Insights for developing auto quoting systems. 

Topic 5. Overview of popular trade execution algorithms: VWAP, TWAP, Volume in line (participation), Liquidity seekers (Tex, Guerrilla, etc.) and Optimal trade execution. 

Topic 6. Optimal execution risk and impact cost of large size orders 

Topic 7. Developing and implementing the VWAP execution strategy: naïve VWAP vs. smart VWAP. Reviewing ITG VWAP strategy.  

Topic 8. ntroduction to technical analysis. Developing a trading strategy with automatic trading decisions. 

Topic 9. Executing and assessing the performance of a statistical arbitrage trade 

Structure

Teaching and learning methods

The module combines several teaching and learning methods to help students achieve the stated objectives: 

• Weekly lectures,                                                                                                                                                                                 Note: this module may be delivered face-to-face either at the Ca’ Foscari University of Venice, San Giobbe Campus (Italy) or in Reading (UK). If delivered in Venice, the module will be live-streamed and recorded for those students who wish to attend it from Reading.  
• Additional readings provide current and applied examples of the topics, 
• Seminars, in which students are encouraged to develop their analytical skills or discuss about non-assessed coursework set by the instructors.  
• Equity trading simulations where students are exposed to the concept of VWAP algorithmic executions  

Study hours

At least 29 hours of scheduled teaching and learning activities will be delivered in person, with the remaining hours for scheduled and self-scheduled teaching and learning activities delivered either in person or online. You will receive further details about how these hours will be delivered before the start of the module.

Please note the independent study hours above are notional numbers of hours; each student will approach studying in different ways. We would advise you to reflect on your learning and the number of hours you are allocating to these tasks.

Semester 1 The hours in this column may include hours during the Christmas holiday period.

Semester 2 The hours in this column may include hours during the Easter holiday period.

Summer The hours in this column will take place during the summer holidays and may be at the start and/or end of the module.

Assessment

Requirements for a pass

50% weighted average mark of individual test and group assignment. 

Summative assessment

Penalties for late submission of summative assessment

The Support Centres will apply the following penalties for work submitted late:

Assessments with numerical marks

• where the piece of work is submitted after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for that piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of three working days;
• the mark awarded due to the imposition of the penalty shall not fall below the threshold pass mark, namely 40% in the case of modules at Levels 4-6 (i.e. undergraduate modules for Parts 1-3) and 50% in the case of Level 7 modules offered as part of an Integrated Masters or taught postgraduate degree programme;
• where the piece of work is awarded a mark below the threshold pass mark prior to any penalty being imposed, and is submitted up to three working days after the original deadline (or any formally agreed extension to the deadline), no penalty shall be imposed;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

Assessments marked Pass/Fail

• where the piece of work is submitted within three working days of the deadline (or any formally agreed extension of the deadline): no penalty will be applied;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension of the deadline): a grade of Fail will be awarded.

The University policy statement on penalties for late submission can be found at: https://www.reading.ac.uk/cqsd/-/media/project/functions/cqsd/documents/qap/penaltiesforlatesubmission.pdf

You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.

Formative assessment

Formative assessment is any task or activity which creates feedback (or feedforward) for you about your learning, but which does not contribute towards your overall module mark.

Ongoing feedback throughout all lectures, seminars and workshops 

Sample multiple-choice questions via Blackboard 

Practice trading sessions 

Reassessment

Additional costs