Financial Trading and Investing

Financial Trading and Investing

1st Edition - August 20, 2012

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  • Author: John Teall
  • Hardcover ISBN: 9780123918802
  • eBook ISBN: 9780123918819

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A former member of the American Stock Exchange introduces trading and financial markets to upper-division undergraduates and graduate students who are planning to work in the finance industry. Unlike standard investment texts that cover trading as one of many subjects, Financial Trading and Investing gives primary attention to trading, trading institutions, markets, and the institutions that facilitate and regulate trading activities—what economists call "market microstructure." The text will be accompanied by a website that can be used in conjunction with TraderEx, Markit, StocklinkU, Virtual Trade, Vecon Lab Experiment, Tradingsim, IB Student Trading Lab, Brenexa, Stock Trak and How the Market Works.

Key Features

  • Introduces the financial markets and the quantitative tools used in them so students learn how the markets operate and gain experience with their principal tools
  • Helps students develop their skills with the most popular trading simulation programs so they can reuse the book to solve day-to-day problems
  • Stretches from investor behavior to hedging strategies and noise trading, capturing recent advances in an up-to-date reference source


Upper-division undergraduates and graduate students worldwide working in financial investments and portfolio theory. These students typically seek entry-level jobs trading stocks, bonds, and commodities.

Table of Contents

  • Dedication



    Chapter 1. Introduction to Securities Trading and Markets

    1.1 Trades, Traders, Securities, and Markets

    1.2 Securities Trading

    1.3 Bargaining

    1.4 Auctions

    1.5 Introduction to Market Microstructure

    1.6 Orders, Liquidity, and Depth

    1.7 Day Trading

    Additional Reading


    1.8 Exercises

    Chapter 2. Financial Markets, Trading Processes, and Instruments

    2.1 Exchanges and Floor Markets

    2.2 The Way It Was

    2.3 Over-the-Counter Markets and Alternative Trading Systems

    2.4 The Decline of Brick and Mortar

    2.5 Crossing Networks and Upstairs Markets

    2.6 Quotation, Intermarket, and Clearing Systems

    2.7 Brokerage Operations

    2.8 Fixed-Income Securities and Money Markets

    2.9 Markets around the World

    2.10 Currency Exchange and Markets

    Additional Reading


    2.11 Exercises

    Chapter 3. Institutional Trading

    3.1 Institutions and Market Impact

    3.2 Registered Investment Companies

    3.3 Unregistered Investment Companies

    3.4 Best Execution, Execution Costs, And Price Improvement

    3.5 Algorithmic Trading

    3.6 Dark Pools

    3.7 Stealth And Sunshine Trading

    3.8 High-Frequency Trading

    3.9 Flash Trading And Sponsored Access

    Additional Reading


    3.10 Exercises

    Chapter 4. Regulation of Trading and Securities Markets

    4.1 Background and Early Regulation

    4.2 U.S. Securities Market Legislation: The Foundation

    4.3 Crises and Updating the Regulatory System

    4.4 Deregulation, Corporate Scandals, and the Financial Crisis of 2008

    4.5 Dodd-Frank

    4.6 Government Oversight of Self-Regulation: The Securities and Exchange Commission and Commodity Futures Trading Commission

    4.7 Impact of Regulatory Activity

    4.8 Regulation: The International Arena

    4.9 Privatization of Regulation and Exchange Rules

    Additional Reading


    4.10 Exercises

    Chapter 5. Adverse Selection, Trading, and Spreads

    5.1 Information and Trading

    5.2 Noise Traders

    5.3 Adverse Selection in Dealer Markets

    5.4 Adverse Selection and the Spread

    Additional Reading


    5.5 Exercises

    Chapter 6. Random Walks, Risk, and Arbitrage

    6.1 Market Efficiency and Random Walks

    6.2 Risk

    6.3 Arbitrage

    6.4 Limits to Arbitrage

    Additional Reading


    6.5 Exercises

    Appendix 6.A

    Chapter 7. Arbitrage and Hedging with Fixed Income Instruments and Currencies

    7.1 Arbitrage with Riskless Bonds

    7.2 Fixed Income Hedging

    7.3 Fixed Income Portfolio Immunization

    7.4 Term Structure, Interest Rate Contracts, and Hedging

    7.5 Arbitrage with Currencies

    7.6 Arbitrage and Hedging with Currency Forward Contracts

    7.7 Hedging Exchange Exposure

    Additional Reading


    7.8 Exercises

    Chapter 8. Arbitrage and Hedging with Options

    8.1 Derivative Securities Markets and Hedging

    8.2 Put–Call Parity

    8.3 Options and Hedging in a Binomial Environment

    8.4 The Greeks and Hedging in a Black-Scholes Environment

    8.5 Exchange Options

    8.6 Hedging Exchange Exposure with Currency Options

    Additional Reading


    8.7 Exercises

    Appendix 8.A

    Chapter 9. Evaluating Trading Strategies and Performance

    9.1 Evaluating Investment Portfolio Performance

    9.2 Market Timing Versus Selection

    9.3 Trade Evaluation and Volume-Weighted Average Price

    9.4 Implementation Shortfall

    9.5 Value at Risk

    Additional Reading


    9.6 Exercises

    Chapter 10. The Mind of the Investor

    10.1 Rational Investor Paradigms

    10.2 Prospect Theory

    10.3 Behavioral Finance

    10.4 Neurofinance: Getting into the Investor’s Head

    10.5 The Consensus Opinion: Stupid Investors, Smart Markets?

    Additional Reading


    10.6 Exercises

    Chapter 11. Market Efficiency

    11.1 Introduction to Market Efficiency

    11.2 Weak form Efficiency

    11.3 Testing Momentum and Mean Reversion Strategies

    11.4 Semistrong form Efficiency

    11.5 The Event Study Methodology

    11.6 Strong form Efficiency and Insider Trading

    11.7 Anomalous Efficiency and Prediction Markets

    11.8 Epilogue

    Additional Reading


    11.9 Exercises

    Chapter 12. Trading Gone Awry

    12.1 Illegal Insider Trading

    12.2 Front Running and Late Trading

    12.3 Bluffing, Spoofing, and Market Manipulation

    12.4 Payment for Order Flow

    12.5 Fat Fingers, Hot Potatoes, and Technical Glitches

    12.6 Rogue Trading and Rogue Traders

    12.7 Trading and Ponzi Schemes

    Additional Reading


    12.8 Exercises

    Mathematics Appendix

    A.1 A Brief Overview of Elementary Statistics

    A.2 Essentials of Matrices and Matrix Arithmetic

    A.3 Derivatives of Polynomials

    A.4 Reference Tables


    End-of-Chapter Exercise Solutions

    Chapter 1

    Chapter 2

    Chapter 3

    Chapter 4

    Chapter 5

    Chapter 6

    Chapter 7

    Chapter 8

    Chapter 9

    Chapter 10

    Chapter 11

    Chapter 12


Product details

  • No. of pages: 456
  • Language: English
  • Copyright: © Academic Press 2012
  • Published: August 20, 2012
  • Imprint: Academic Press
  • Hardcover ISBN: 9780123918802
  • eBook ISBN: 9780123918819

About the Author

John Teall

John Teall is a visiting professor at LUISS Business School in Rome, Italy. He is a former member of the American Stock Exchange and has served as a consultant to Deutsche Bank, Goldman Sachs, and other financial institutions.

Affiliations and Expertise

Johns Hopkins University

Ratings and Reviews

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  • Joakim W. Wed Sep 19 2018

    Associate Professor of Finance at the University of Sydney Business School

    This is an excellent up-to-date textbook and we use it for our trading classes in both our undergraduate and masters programs.