Market Microstructure

National Bureau of Economic Research (NBER) defines market microstructure as a field of study that is devoted to theoretical, empirical, and experimental research on the economics of securities market. Market microstructure deals with the issues such as market structure & design, price formation & discovery, transaction & timing cost, information & disclosure, and market maker & investor behavior. The following have varying impact on the market microstructure analysis:

1. Market Structure and Design - Market structure affects the trading costs and the efficiency of execution. It also focusses on the implication of the structure for determination of market parameters such as liquidity, spreads, and volatility.

2. Price Formation and discovery - It includes the process by which trading costs are determined. Market makers play an important role in price formation and discovery. So, it becomes very important from their perspective to understand the underlying factors that influence the process of price discovery.

3. Transaction costs and timing costs - This focuses on the impact of transaction cost on investment returns and on execution methods.

4. Information and Disclosure - This focuses on market transparency that is the ability of the market participants to retrieve information about the trading process, such as the bid/offer, tick data etc.

What's Next?

Market microstructure is essential in trading firms because it enhances order execution, cost efficiency, and strategy development. If you’re looking to master how modern markets truly operate, Module 3: Market Microstructure Course — part of the Executive Programme in Algorithmic Trading (EPAT) — is a must.

You’ll also learn how to develop and apply execution strategies that minimize market impact, explore core trading strategies like trend following, delta neutral, market making, and statistical arbitrage, and analyze transaction costs to optimize performance. With hands-on exposure to Python and Excel-based tools, the learning is as practical as it is deep.

To explore the full curriculum and gain skills across machine learning, financial computing, quant trading strategies, and more, check out the complete Executive Programme in Algorithmic Trading (EPAT). Whether you're just starting out or looking to level up, EPAT gives you the structure, depth, and practical expertise to succeed in today’s markets.