Researcher course in high-frequency trading
High-Frequency Trading and Market Making
The models behind high-frequency strategies: optimal market making with inventory risk, adverse selection, short-horizon signals from the book, latency arbitrage, and how to test strategies whose results depend on queue position. It also teaches market making strategy and inventory risk.
High-frequency trading, studied seriously, is a branch of applied probability. A market maker posts prices on both sides, earns the spread when both fill, and loses when the price moves while it holds inventory or when it trades with someone who knew more. The course builds the models that balance those forces.
How does an HFT market maker set its quotes?
In the Avellaneda-Stoikov model, the market maker shifts both quotes away from the mid price in the direction that reduces its inventory, and widens or narrows the spread according to volatility, risk aversion and how quickly orders arrive. The result is a reservation price and an optimal spread with closed-form approximations. You will derive them, implement them, and test them in a simulator that respects queue position.
Why can’t HFT strategies be tested with an ordinary backtest?
Because their profit depends on whether a limit order would have filled, and that depends on where it would have sat in the queue and what other traders did. A backtest that fills every order touched by the price overstates profit badly. The course builds a queue-aware simulation and shows the size of the difference.
Why do most market makers lose to informed traders?
A market making strategy quotes a price to buy and a price to sell at the same time, and earns the gap between them. It sounds simple, and it is one of the most competitive activities in markets. This course teaches the economics, the mathematics of optimal quoting, and the simulation needed to test a market maker honestly.
Because the traders who choose to hit a quote often know something the quote does not. A market maker that ignores this fills mostly on the wrong side of the next move. The course measures that cost from fills and shows how quotes are moved to defend against it.
Who is this course for?
Quantitative researchers and developers working in or moving into market making and HFT.
What you will be able to do
- Derive and implement the Avellaneda-Stoikov market making model.
- Model inventory risk and adverse selection and their effect on quotes.
- Build short-horizon signals from order book features and measure their decay.
- Describe latency arbitrage and the economics of the speed race.
- Design a simulation that models queue position and fill probability.
- Explain how a market maker earns the spread and what inventory and adverse selection cost it.
Syllabus, module by module
The HFT landscape
Strategy types, firm economics, and the role of speed in each.
Market making
Quoting both sides, the spread as compensation, and inventory as the main risk.
Optimal market making
The Avellaneda-Stoikov model: reservation price, optimal spread and their derivation.
Adverse selection
Informed flow, toxicity measures and quoting when the book is about to move.
What market makers do
Liquidity provision, designated and electronic market makers, rebates and obligations.
Inventory risk
Why holding a position is the market maker's main risk, and skewing quotes to shed it.
What every course contains
Every paid course comes with the first seven and the certificate, whichever level it sits at. The proctored exam and the credential come when the course is taken as part of a Certificate, Diploma or Fellowship. Everything is self-paced: the material is yours to study in any order, at any hour, for the whole of the license.
- Workbooks. Written to train the thinking patterns and the important concepts of the course, with worked problems and the reasoning behind each answer, so that you learn to think the way the subject is thought.
- Audio edition. Focused, well-presented recordings with explainers and examples of the material, made to be interesting, relevant and entertaining, so that the general subject can be learned away from the desk.
- Notes. Pre-produced notes with every fact the course relies on, written out in full, so that nothing has to be transcribed from the films or the audio.
- Cheat sheet. One sheet with every important learning concept of the course on it, to keep beside you during the work and to revise from before the exam.
- Named sources. Every fact in the notes names its source, the paper, the book or the dataset, for anyone who wants to dig in further.
- Explainer films. Focused films, in the style of the sample films on the catalog page, that walk through the most difficult concepts of the course with visual explanations of a high standard.
- Transcript. A full transcript of every film and every audio recording, searchable and quotable.
- Proctored exam. Taken as part of a Certificate, Diploma or Fellowship, the course ends in a proctored multiple-choice questionnaire, with a pass mark of 60% and three retakes included. A course taken on its own is assessed by its coursework and has no exam.
- Verifiable certificate. A certificate of completion that a third party can verify: an employer sends the code on it to the credentials office and receives written confirmation of the course, the date and the result.
- Credential of the program. The Certificate, Diploma or Fellowship of the program, track or path the course belongs to, awarded when every course in it is passed. Which one depends on the program you choose.
How the certificate is earned
A written paper-style assessment with a simulation component: you extend a market making model with a signal or constraint of your choice, test it in a queue-aware simulator, and write up the derivation and results. On a pass you receive the Course certificate in High-Frequency Trading and Market Making, issued by the Institute with a verification code. A course taken as part of a Certificate, Diploma or Fellowship ends in a proctored online exam with a pass mark of 60%. The fee includes three retakes; each attempt after that carries a reduced proctored exam fee. A course taken on its own is assessed by its coursework and has no exam. Read how certification works.
Before you start
This course assumes the material of the courses below, or the same knowledge gained elsewhere.
This course counts toward
- Certificate in High-Frequency Trading and Market MicrostructureFour courses and a capstone on how orders meet: the limit order book, execution algorithms and their costs, venue routing, market making and the C++ systems that run them.
- Professional Diploma in Algorithmic TradingThe top credential on the practitioner path. Twenty-one courses and an 80-hour capstone covering everything between the mathematics and a book you could defend to a risk committee.
Questions applicants ask
Can you learn high frequency trading online?
You can learn the models, the microstructure and the testing methods, which is what this course teaches. Running a competitive HFT business also needs infrastructure and capital that no course provides.
What math does high frequency trading use?
Probability, stochastic processes and stochastic control for market making, and statistics for short-horizon signals. The course assumes stochastic calculus to the level of Ito’s lemma.
Does the course include coding?
Yes. Models are implemented and tested in Python. C++ for Quantitative Finance and Low-Latency Systems covers the engineering side.
How do market makers make money?
They buy at the bid and sell at the ask many times a day, keeping the spread. They lose when prices move against the inventory they hold or when they trade with better-informed traders, and their skill is in limiting those losses.