Blog Posts

Market microstructure is a specialized area within finance that explains how assets are exchanged in markets. Market microstructure affects liquidity, transaction costs, and price discovery. It’s applicable to both real and financial assets, but the latter has seen more extensive research due to the readily available transaction data. The primary focus of market microstructure research […]

MBS are essentially bonds backed by pools of mortgages. When homeowners make their mortgage payments, those payments flow through to the MBS investors. This offers investors a way to participate in the real estate market without directly owning properties. For traders, they offer a different type of fixed-income product to trade.   Key Takeaways – […]

What separates professional traders from amateur traders? What do they know or what traits do they share? Let’s take a look. 1) Risk Management Professionals have a strong understanding of risk management principles and techniques, such as position sizing, cost-effective use of options, and portfolio diversification. They tend to think of having a certain structure […]

Time series forecasting models in trading are statistical techniques used to predict future values of financial assets based on historical data. These models try to identify patterns and trends in time series data to help traders to make informed decisions about entry and exit points, as well as risk management strategies. Accurate forecasting can provide […]

Duration-neutral spread basis (DNSB) refers to a trading strategy or approach that tries to construct a portfolio or set of positions that are uncorrelated or neutral to the broader market movements, specifically to changes in interest rates or duration risk. The goal is to systematically eliminate or minimize exposure to the overall market risk while […]

Trading provides value to the financial system and economy in several key ways. Some who don’t understand or like finance, markets, or trading might claim it’s a “waste of time” or that other industries should be getting more of the talent that the financial industry gets. What exactly is the function and value of trading? […]

Convergence trading strategies try to profit from the temporary mispricing of two related financial instruments that have diverged from their long-term equilibrium relationship.  Traders establish positions that will ideally benefit when the identified mispricing corrects itself and the assets converge back toward their expected equilibrium.  A deep understanding of the cause-effect mechanics and drivers of […]

We look at the differences between cointegration and correlations and its application in trading. Imagine a trader observing two assets that seem to move in unison. Do these assets offer a solid basis for a trading strategy (e.g., eventual convergence if they run apart)? Noticing this movement alone isn’t sufficient. It’s important to determine whether […]

Related securities and assets – most stocks, oil and natural gas – often move together in the market over long periods of time. This reflects a financial concept known as cointegration. Cointegration occurs when asset prices move together over the long term, even if they may diverge in the short term. While correlation is by […]

There are very few true monopolies in the stock market these days the classic sense, as antitrust laws and regulations aim to promote competition. Nonetheless, there are some companies that enjoy a dominant market position or quasi-monopolistic advantages in their respective industries.   Key Takeaways – Stocks That Are Monopolies Stocks that are monopolies (examples) […]