by Fabrizio Lillo, Felipe Moret
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Suggested foundations for market microstructure and execution and financial machine learning. Specialist prerequisites vary by paper.
Read bid, ask, depth and queue-based market state.
Understand why fills and order flow can carry information.
Preserve time order and avoid future information in training.
Establish an interpretable baseline before a flexible model.
Connect trading speed and size to execution cost.
Measure execution relative to the decision price.
Account for dependence and overlapping observations.
Learn the trading state and execution trade-off before evaluating reinforcement-learning market makers.
Choose a reproducible strategy, specify the trading rule, and test what remains after costs and estimation uncertainty.