Anthony Calvo

Annotated Bibliography
Abstract
My interest in the topic stems from my passion for finance and software
engineering. Automated trading uses basic computer programming in order to trade
stocks automatically. Several large investing firms have adopted automated trading and a
few individuals have as well. However individuals seem to be a very small minority as it
is generally difficult for a person to have expertise in both programming and finance. The
viability of automated trading seems to be slowly accepted for business, but the
implications of such system on the individual investor is still unknown. Also even if
automated trading is a viable option for the individual investor, the transition into
automated trading could create new market trends that could effect individuals. Yet,
individuals still stand a lot to gain. Automated trading allows the individual investor to
trade while at work and trade faster due to having smaller buy and sell amounts.
Currently the growing number of automated trading adopters leaves individual investors
to question the viability of automated trading and the potential implications if these
systems become a majority.

Durenard, Eugene A.. Wiley Finance : Professional Automated Trading : Theory and
Practice. Somerset, NJ, USA: John Wiley & Sons, 2013. ProQuest ebrary. Web. 24
October 2014.
The book discusses the philosophy and viability of automated trading and then
how to go about implementing such a strategy. Dr. Durenard, Eugene explains ( Harvard
Mathematics graduate now working at Limited G investing firm) what he considers to be
trends throughout the market and then later how to apply them to systematic trading*. He
seems to be writing specifically to everyday investors who have small amounts of
programming experience and want to implement automated trading. He does so in the
context of so many large firms slowly acquiring these strategies The introduction
provides relevant information of how the stock market has progressed from bartering for
oranges and apple to using complex software to trade stocks electronically. Almost most
importantly is he provides insights on effectively implementing a series of processes that
can form a robust and fault-tolerant automated systematic trading architecture. This is
one of the main point normally brought up against automated trading systems ( fault). If
one could eliminate the fault from the equation through a fault -tolerant system it would
give automated trading considerably more appealing to investors. In comparison with
other sources this one clearly supports automated trading, but in contrast in goes in to a
lot more depth about actually implementing such a strategy.
*systematic trading is a methodical way of defining trade risks, goals, and rules.

Nuti, G.; Mirghaemi, M.; Treleaven, P.; Yingsaeree, C., "Algorithmic Trading,"
Computer , vol.44, no.11, pp.61,69, Nov. 2011
doi: 10.1109/MC.2011.31

The paper was authored by several people from the university college London
computer science department. Three are PHD students (Nuti, Mirghaemi, and
Yingsaeree) and Treleaven is a professor( a member of the IEEE foundation). The paper
is written to people with knowledge of the topic, who aren't necessarily proliferate in it. It
also presented via the IEEE foundation, which helps young people get excited about
technical subjects, and therefore as reflected by the wording of the paper it is presenting
algorithmic trading* to younger people. Importantly it makes differentiation between
when an institution uses its own trade executions and when a program executes the trade
on behalf of a client. This is absolutely key when discussing the advantages and
disadvantages for large institutions oppose to the individual investor, who must have
someone trade on their behalf and therefore must pay commissions on each trade which
must be factored into the algorithm. It specifies that broker algorithmic trading systems
seek to minimize the cost of trading by optimizing the execution strategy whereas
proprietary algorithmic trading systems seek to maximize profits against some measure
of financial risk (Nuti 63). It also gives a few disadvantages such as the flash crash in
2010. This source is relatively short and easily read, opposed to Professional Automated
Trading : Theory and Practice making the source incredibly useful for writing technical
concepts in an everyday manner.
*Algorithmic trading uses certain pre set conditions and variables to choose which stocks
to buy or sell. Automated trading is a subset of algorithmic trading in which those
algorithms are placed into a computer program that executes the trades as if it was an
investor itself. The two are used often interchangeably because algorithmic trading is
virtually always used as in the automated form.
Buchanan, Mark. "It's Location, Location, Location for Automated Trading." New
Scientist Nov 2010: 23. ProQuest. Web. 3 Nov. 2014 .
This article by Buchanan ( a physicist and author for the publication the New
Scientist) presents an often unconsidered factor in automated trading, location. One of
the main purposes of automated trading is to have faster trade times and therefore buy
before everyone else and sell before everyone else therefore maximizing profits and
minimizing loses. However, there are several location across the globe that are able to
send trades milliseconds faster due to either there distance from a major exchange or low
internet traffic in remote cites. Milliseconds are huge in trade execution because which
ever order is in first is filled first. If this is true and companies are considering moving to
possibly remote location in order to maximize trade speeds there could be drawbacks for
everyday investors. For one most people cannot afford to move to an entirely new

location to be close to an exchange, while companies can. The only possible solution to
this I can see would be if automated systems were set up several miles away from the
investor and traded automatically from there. However, this has a major drawback of not
being able to actively monitor the hardware running the program. The article in general is
warning to everyday investors at the potential disadvantage of trading from different
locations. Compared to other sources this article does not have any technical language
what so ever, but is merely cautionary.
Zubulake, Paul, and Lee, Sang. High Frequency Game Changer : How Automated
Trading Strategies Have Revolutionized the Markets. Hoboken, NJ, USA: John Wiley &
Sons, 2011. ProQuest ebrary. Web. 6 November 2014.

Paul Zubulake ad Sang Lee ( a senior analyst and a co-founder of Aite Group,
respectively) are both authors of this book. The book was made in research and in
attempts to help explain the role of automated trading in the market place, a role that is
often misunderstood and of major importance in an ever-changing market(xii). The
book focuses mainly on high frequency trading which is a subset of automated trading. It
involves using the high speed at which computers can trade to make 2 or 3 cents on every
trade due to very small fluctuation within each second. This is done rapidly with an
immense amount of trades at once so that overtime a considerable amount of money is
accumulated. The book argues for the switch to electronic and automated trading because
of its immense potential. The drawbacks are recognized, but many of these drawbacks
seem to be do to the fact the technology is so new. The source is particularly useful
because, unlike the others, it focuses on high frequency trading which I had not yet
considered. Also it goes over the market structure on a more macroscopic level than the
other sources.
Chan, Ernie. Wiley Trading : Algorithmic Trading : Winning Strategies and Their
Rationale. Somerset, NJ, USA: John Wiley & Sons, 2013. ProQuest ebrary. Web. 6
November 2014.
Ernest Chan, the managing member of QTS Capital Management, writes the book
for other traders similar to him, but he explicitly states he is not giving away the family
jewels(xiv) in doing so. Chan writes this book to let other investors know of strategies
that have worked for him in the past, but no longer apply to him. The book briefly skims
over automated trades and backtesting in general, focusing primarily on mean reversion (
a combination of backtesting to trade automatically). He supports his programs and
theories by citing other works from which he came to these conclusions or actually
showing the programs performance over a period of time. Again the source talks about
automated trading, but in comparison with the other sources it focuses more on mean
reversion and backtesting. The source is particularly useful because he explains his
methods and idea, but specifies that even perfect programs can only work under specific

conditions. The program must be specified to the particular market. Compared to other
sources he is much less definite in his assertions and always points out that his argument
only works in certain situations.

Bergan, Peter, and Colleen Devine. "Algorithmic Trading: What Should You B e
Doing?." Investment Guides Series: Algorithmic Trading: Precision, Control, Execution
(2005): 14-19. Business Source Complete. Web. 6 Nov. 2014.

Peter Bergan (broadcast journalist) and Colleen Devine ( Citisoft consultant) write
within the Investment Guide Series about the advantages and disadvantages of
algorithmic trading for the everyday investor and institutions. They are writing in
response to peoples misunderstandings of certain aspects of algorithmic trading and
growing interest in the field. The article argues in favor of automated trading, but
specifies that it should not be a firms entire method of investment, simply one option.
This argument is supported by first explaining the evolution of algorithmic trading and its
current state, and then some general tips about best execution and trade cost analysis.
This source is very similar to some of the other sources in that it gives background
information about the market pre algorithmic trading, but it takes a stronger stance on the
current market structure and does so in a more condensed fashion.