by Daniele Maria Di Nosse, Fabrizio Lillo
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Suggested foundations for market microstructure and execution and trading research and honest backtests. Specialist prerequisites vary by paper.
Read bid, ask, depth and queue-based market state.
Understand why fills and order flow can carry information.
Use only information available at the simulated decision time.
Separate model selection from the final evaluation.
Connect trading speed and size to execution cost.
Measure execution relative to the decision price.
Reconcile signals, executions, positions and P&L.
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.