Financial Trading and Investing, 1st Edition

Financial Trading and Investing, 1st Edition,John Teall,ISBN9780123918802


Academic Press




240 X 197

This textbook teaches trading techniques, strategies, and regulations by placing them squarely within the structures of financial markets

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Key Features

  • Introduces the financial markets and the quantitative tools used in them so students learn how the markets operate and gain experience with their principal tools
  • Helps students develop their skills with the most popular trading simulation programs so they can reuse the book to solve day-to-day problems
  • Stretches from investor behavior to hedging strategies and noise trading, capturing recent advances in an up-to-date reference source


A former member of the American Stock Exchange introduces trading and financial markets to upper-division undergraduates and graduate students who are planning to work in the finance industry. Unlike standard investment texts that cover trading as one of many subjects, Financial Trading and Investing gives primary attention to trading, trading institutions, markets, and the institutions that facilitate and regulate trading activities—what economists call "market microstructure." The text will be accompanied by a website that can be used in conjunction with TraderEx, Markit, StocklinkU, Virtual Trade, Vecon Lab Experiment, Tradingsim, IB Student Trading Lab, Brenexa, Stock Trak and How the Market Works.


Upper-division undergraduates and graduate students worldwide working in financial investments and portfolio theory. These students typically seek entry-level jobs trading stocks, bonds, and commodities.

John Teall

John Teall is a visiting professor at LUISS Business School in Rome, Italy. He is a former member of the American Stock Exchange and has served as a consultant to Deutsche Bank, Goldman Sachs, and other financial institutions.

Affiliations and Expertise

Rensselaer Polytechnic Institute, Troy, NY, USA

Financial Trading and Investing, 1st Edition




Chapter 1. Introduction to Securities Trading and Markets

1.1 Trades, Traders, Securities, and Markets

1.2 Securities Trading

1.3 Bargaining

1.4 Auctions

1.5 Introduction to Market Microstructure

1.6 Orders, Liquidity, and Depth

1.7 Day Trading

Additional Reading


1.8 Exercises

Chapter 2. Financial Markets, Trading Processes, and Instruments

2.1 Exchanges and Floor Markets

2.2 The Way It Was

2.3 Over-the-Counter Markets and Alternative Trading Systems

2.4 The Decline of Brick and Mortar

2.5 Crossing Networks and Upstairs Markets

2.6 Quotation, Intermarket, and Clearing Systems

2.7 Brokerage Operations

2.8 Fixed-Income Securities and Money Markets

2.9 Markets around the World

2.10 Currency Exchange and Markets

Additional Reading


2.11 Exercises

Chapter 3. Institutional Trading

3.1 Institutions and Market Impact

3.2 Registered Investment Companies

3.3 Unregistered Investment Companies

3.4 Best Execution, Execution Costs, And Price Improvement

3.5 Algorithmic Trading

3.6 Dark Pools

3.7 Stealth And Sunshine Trading

3.8 High-Frequency Trading

3.9 Flash Trading And Sponsored Access

Additional Reading


3.10 Exercises

Chapter 4. Regulation of Trading and Securities Markets

4.1 Background and Early Regulation

4.2 U.S. Securities Market Legislation: The Foundation

4.3 Crises and Updating the Regulatory System

4.4 Deregulation, Corporate Scandals, and the Financial Crisis of 2008

4.5 Dodd-Frank

4.6 Government Oversight of Self-Regulation: The Securities and Exchange Commission and Commodity Futures Trading Commission

4.7 Impact of Regulatory Activity

4.8 Regulation: The International Arena

4.9 Privatization of Regulation and Exchange Rules

Additional Reading


4.10 Exercises

Chapter 5. Adverse Selection, Trading, and Spreads

5.1 Information and Trading

5.2 Noise Traders

5.3 Adverse Selection in Dealer Markets

5.4 Adverse Selection and the Spread

Additional Reading


5.5 Exercises

Chapter 6. Random Walks, Risk, and Arbitrage

6.1 Market Efficiency and Random Walks

6.2 Risk

6.3 Arbitrage

6.4 Limits to Arbitrage

Additional Reading


6.5 Exercises

Appendix 6.A

Chapter 7. Arbitrage and Hedging with Fixed Income Instruments and Currencies

7.1 Arbitrage with Riskless Bonds

7.2 Fixed Income Hedging

7.3 Fixed Income Portfolio Immunization

7.4 Term Structure, Interest Rate Contracts, and Hedging

7.5 Arbitrage with Currencies

7.6 Arbitrage and Hedging with Currency Forward Contracts

7.7 Hedging Exchange Exposure

Additional Reading


7.8 Exercises

Chapter 8. Arbitrage and Hedging with Options

8.1 Derivative Securities Markets and Hedging

8.2 Put–Call Parity

8.3 Options and Hedging in a Binomial Environment

8.4 The Greeks and Hedging in a Black-Scholes Environment

8.5 Exchange Options

8.6 Hedging Exchange Exposure with Currency Options

Additional Reading


8.7 Exercises

Appendix 8.A

Chapter 9. Evaluating Trading Strategies and Performance

9.1 Evaluating Investment Portfolio Performance

9.2 Market Timing Versus Selection

9.3 Trade Evaluation and Volume-Weighted Average Price

9.4 Implementation Shortfall

9.5 Value at Risk

Additional Reading


9.6 Exercises

Chapter 10. The Mind of the Investor

10.1 Rational Investor Paradigms

10.2 Prospect Theory

10.3 Behavioral Finance

10.4 Neurofinance: Getting into the Investor’s Head

10.5 The Consensus Opinion: Stupid Investors, Smart Markets?

Additional Reading


10.6 Exercises

Chapter 11. Market Efficiency

11.1 Introduction to Market Efficiency

11.2 Weak form Efficiency

11.3 Testing Momentum and Mean Reversion Strategies

11.4 Semistrong form Efficiency

11.5 The Event Study Methodology

11.6 Strong form Efficiency and Insider Trading

11.7 Anomalous Efficiency and Prediction Markets

11.8 Epilogue

Additional Reading


11.9 Exercises

Chapter 12. Trading Gone Awry

12.1 Illegal Insider Trading

12.2 Front Running and Late Trading

12.3 Bluffing, Spoofing, and Market Manipulation

12.4 Payment for Order Flow

12.5 Fat Fingers, Hot Potatoes, and Technical Glitches

12.6 Rogue Trading and Rogue Traders

12.7 Trading and Ponzi Schemes

Additional Reading


12.8 Exercises

Mathematics Appendix

A.1 A Brief Overview of Elementary Statistics

A.2 Essentials of Matrices and Matrix Arithmetic

A.3 Derivatives of Polynomials

A.4 Reference Tables


End-of-Chapter Exercise Solutions

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 12


Quotes and reviews

"Teall’s Financial Trading and Investing presents clear and up-to-date coverage of trading and market microstructure. Arbitrage and hedging examples in currency, forwards, fixed income and options markets are well developed, with particular attention devoted to implementing transactions."--Ahmet K. Karagozoglu, Hofstra University

"I enjoyed reading the material in Financial Trading and Investing. Dr. Teall’s coverage of the content in this text is very thorough, and it fills a niche in academic and professional literature on trading and market microstructure."--Travis Jones, Florida Gulf Coast University

"The presentation is well supported not only by the extensive use of professional literature but also by examples in each chapter. The end-of-chapter questions enhance learning by enabling students to apply concepts in meaningful ways. They make the material more ‘real world' for advanced undergraduates or graduate students."--Kevin Klein, Illinois College

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