Market Microstructure
Market microstructure is a field of financial economics that studies the process and mechanisms of how securities are traded in financial markets, focusing on the detailed structure and dynamics of trading systems. It examines how specific trading mechanisms, rules, and participant behaviors affect price formation, liquidity, transaction costs, and market efficiency. This includes analyzing order types, market makers, electronic trading platforms, and the impact of information asymmetry on market outcomes.
Developers should learn market microstructure when building or optimizing trading systems, algorithmic trading strategies, or financial data analytics platforms, as it provides critical insights into market behavior and execution quality. It is essential for roles in quantitative finance, high-frequency trading, and fintech to design efficient trading algorithms, minimize transaction costs, and ensure regulatory compliance. Understanding microstructure helps in modeling market impact, predicting liquidity, and improving trade execution in real-world financial environments.