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We propose a microstructural model for the order flow in financial markets that distinguishes between {\it core orders} and {\it reaction flow}, both modeled as Hawkes processes. This model has a natural scaling limit that reconciles a number of salient empirical properties: persistent signed order flow, rough trading volume and volatility, and power-law market impact. In our framework, all these quantities are pinne…
High-frequency trading (HFT) is an investing strategy that continuously monitors market states and places bid and ask orders at millisecond speeds. Traditional HFT approaches fit models with historical data and assume that future market states follow similar patterns. This limits the effectiveness of any single model to the specific conditions it was trained for. Additionally, these models achieve optimal solutions o…
Classical market-making strategies based on stochastic control, such as the Avellaneda-Stoikov and the Guéant-Lehalle-Fernandez-Tapia (GLFT) extension, provide closed-form quoting rules, but rest on assumptions that break down at realistic microstructure timescales. One of them is that order flow is stationary, while empirical evidence points to the existence of regimes, possibly associated with algorithmic execution…
Financial markets alternate between periods of relative stability and instability, with structural breaks marking the transitions between these regimes. Identifying such breaks in real time is a central requirement for any trading or risk system operating at high frequency. This report studies Bayesian Online Changepoint Detection (BOCPD) and two extensions proposed in the literature, and applies them to the signed o…
Order flow is toxic when it adversely selects market makers, who may be unaware they are providing liquidity at a loss. We present a new procedure to estimate flow toxicity based on volume imbalance and trade intensity (the VPIN toxicity metric). VPIN is updated in volume time, making it applicable to the high-frequency world, and it does not require the intermediate estimation of non-observable parameters or the app…
ABSTRACT We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity, and the yield curve. We find that orderflow imbalances (excess buying or selling pressure) account for up to 26% of the day‐to‐day variation in yields on days without major macroeconomic announcements. The effect of orderflow on yields is permanent and strongest when liquidity i…
Abstract Following the “flash crash” on May 6, 2010, warning signals for impending market stress have been in high demand, yet only the VPIN metric of Easley, López de Prado, and O’Hara (ELO) has claimed success. In addition, ELO find the metric useful in predicting short-term volatility. VPIN involves decomposing volume into active buys and sells. We utilize quotes and trade data to construct an accurate trade class…
Building event-conditioned market models requires separating macro-event labels from persistent microstructure state. We study this distinction in Binance BTCUSDT and ETHUSDT futures from 2023-2026, combining top-20 L2 order book data, trade-flow records, and macro-event windows. We define a supervised discrete L2 liquidity-state transition task, distinct from latent-regime detection and price-direction prediction, a…
We propose a Neural Hidden Markov Model (HMM) with Adaptive Granularity Attention (AGA) for high-frequency order flow modeling. The model addresses the challenge of capturing multi-scale temporal dynamics in financial markets, where fine-grained microstructure signals and coarse-grained liquidity trends coexist. The proposed framework integrates parallel multi-resolution encoders, including a dilated convolutional ne…
Foundation models have transformed domains from language to genomics by learning general-purpose representations from large-scale, heterogeneous data. We introduce TradeFM, a 524M-parameter generative Transformer that brings this paradigm to market microstructure, learning directly from billions of trade events across >9K equities. To enable cross-asset generalization, we develop scale-invariant features and a univer…
We establish a general matched filter principle for order flow normalization: optimal normalization must match the scaling behaviour of the signal-generating process. For capacity-constrained institutional investors, market capitalization normalization ($S^{MC}$) is the matched filter; for volume-targeting traders (e.g., VWAP/TWAP algorithms), trading value normalization ($S^{TV}$) is optimal. Monte Carlo simulations…
We present a reproducible research framework for market microstructure combining a deterministic C++ limit order book (LOB) simulator with stochastic order flow generated by multivariate marked Hawkes processes. The paper derives full stability and ergodicity proofs for both linear and nonlinear Hawkes models, implements time-rescaling and goodness-of-fit diagnostics, and calibrates exponential and power-law kernels …
Modern economic systems face unprecedented socioeconomic challenges, making systemic resilience and effective liquidity flow management essential. Traditional models such as CAPM, VaR, and GARCH often fail to reflect real market fluctuations and extreme events. This study develops and validates an innovative mathematical model based on the Navier-Stokes equations, aimed at the quantitative assessment, forecasting, an…
Understanding how market participants react to shocks like scheduled macroeconomic news is crucial for both traders and policymakers. We develop a calibrated data generation process DGP that embeds four stylized trader archetypes retail, pension, institutional, and hedge funds into an extended CAPM augmented by CPI surprises. Each agents order size choice is driven by a softmax discrete choice rule over small, medium…
In high frequency trading, accurate prediction of Order Flow Imbalance (OFI) is crucial for understanding market dynamics and maintaining liquidity. This paper introduces a hybrid predictive model that combines Vector Auto Regression (VAR) with a simple feedforward neural network (FNN) to forecast OFI and assess trading intensity. The VAR component captures linear dependencies, while residuals are fed into the FNN to…
We study how to unwind stochastic order flow with minimal transaction costs. Stochastic order flow arises, e.g., in the central risk book (CRB), a centralized trading desk that aggregates order flows within a financial institution. The desk can warehouse in-flow orders, ideally netting them against subsequent opposite orders (internalization), or route them to the market (externalization) and incur costs related to p…
Introduction: The paper addresses the challenging problem of predicting the short-term realized volatility of the Bitcoin price using order flow information. The inherent stochastic nature and anti-persistence of price pose difficulties in accurate prediction. Methods: To address this, we propose a method that transforms order flow data over a fixed time interval (snapshots) into images. The order flow includes trade…
In this work we investigate tick-by-tick data provided by the TRTH database for several stocks on three different exchanges (Paris - Euronext, London and Frankfurt - Deutsche Börse) and on a 5-year span. We use a simple algorithm that helps the synchronization of the trades and quotes data sources, providing enhancements to the basic procedure that, depending on the time period and the exchange, are shown to be signi…
An agent workflow is a structured loop that plans, calls tools or models, observes results, and repeats until a stop condition — a pipeline with memory, contracts, and failure handling rather than a single completion.
Deposit outflow rate measures the pace at which deposits leave the banking system or individual banks, helping assess funding stability and confidence.
Baltic Dry Index tracks shipping rates for dry bulk commodities and offers a real-economy signal on trade flows, freight conditions, and industrial demand.
A leveraged buyout is a purchase financed mostly with debt on the target’s cash flows — private equity’s standard carry trade on coverage.
A systematic book that targets documented investor behaviors — stops, anchoring, month-end flows — rather than a generic trend equation.
When too many trend books own the same contract the same way, entries get worse, exits gap, and ‘the CTA unwind’ becomes a flow event.
Dealer gamma positioning describes whether option dealers are structurally long or short gamma, shaping how hedging flows amplify or dampen market moves.
Vanna Charm Flow — Second-order greek hedging flows that amplify or dampen spot moves around expiries.
Animal spirits is Keynes’s name for the non-model confidence that makes people invest or refuse to — the residual when rates and cash flows are not enough to explain the tape.
To fade the move is to take the other side of a fast print — sell a spike, buy a dump — on the view that it is flow or a squeeze, not a new equilibrium.
Short covering is buying to close a short — a rally driven by the short base shrinking, not by new longs arriving with a fundamental bid.
Window dressing is quarter- or year-end portfolio cosmetics: dump the losers, buy the winners or the cash, so the snapshot holdings look like the brochure.
Dutch disease is the squeeze on tradable non-resource sectors when a resource boom or capital inflow appreciates the real exchange rate and pulls factors into the booming sector.
GDP is the market value of final goods and services produced in an economy over a period — the size of the flow, not the wealth stock.
Purchasing Managers Index — Survey-based diffusion index that often leads industrial production and trade flows.
Sudden Stop Capital Flows — Abrupt cessation of foreign financing forcing sharp macro adjustment.
The balance sheet is the stock of assets, liabilities, and equity at a date — what the firm owns and owes, not the period’s flow.
Capital expenditure is cash spent to buy or extend long-lived assets — the investing outflow that depreciation later shadows.
The cash-flow statement splits period cash into operating, investing, and financing — the bridge from accrual earnings to the bank account.
Free cash flow is cash from operations minus the capex needed to keep and grow the business — cash that could leave the firm.
A market bubble is a price path driven more by narrative, leverage, and new buyers than by discounted cash flow — obvious after, argued during.
A value stock screens cheap on book, earnings, or cash flow — a low multiple that can be a bargain or a melting ice cube.
Fallen Angels — Investment-grade downgrades into high yield, creating forced selling and index rebalancing flows.
Macaulay duration is the present-value-weighted average time to receive a bond’s cash flows — duration in years, before the modified-duration hedge ratio.
MBS Prepayment Speed — Refinancing and turnover driven cash-flow uncertainty in agency mortgages.
Yield to maturity is the constant discount rate that sets the bond’s dirty price equal to its remaining cash flows if held to maturity and coupons are reinvested at that same rate.
A zero-coupon bond pays no coupon and one cash flow at maturity — duration equals maturity, and the whole return is pull-to-par plus yield change.
Balance of Payments Crisis — Sudden stop in capital flows forcing adjustment through FX, rates, or austerity.
Capital Controls — Official restrictions on cross-border flows that reprice FX basis and investability.
Comparing DXY with an EM FX basket helps assess whether dollar strength is becoming a broader external-financing stress event for emerging markets.
Adverse selection is the expected loss a liquidity provider takes when the other side is informed — the Glosten–Milgrom reason spreads exist even with no inventory.
How price actually forms through order flow, spreads, inventory, and participant interaction.
Payment for Order Flow — Revenue model routing retail orders, affecting execution quality debates.
Dollar-cost averaging is investing a fixed cash amount on a schedule — you buy more shares when price is down, fewer when up.
Herding is correlated action because others are acting — information cascades, career risk, or indexation, not independent theses that happen to agree.
Market Impact Model — Price response to order flow used in optimal execution and capacity estimates.
An agent workflow is a structured loop that plans, calls tools or models, observes results, and repeats until a stop condition — a pipeline with memory, contracts, and failure handling rather than a single completion.
Animal spirits is Keynes’s name for the non-model confidence that makes people invest or refuse to — the residual when rates and cash flows are not enough to explain the tape.
Balance of Payments Crisis — Sudden stop in capital flows forcing adjustment through FX, rates, or austerity.
The balance sheet is the stock of assets, liabilities, and equity at a date — what the firm owns and owes, not the period’s flow.
Baltic Dry Index tracks shipping rates for dry bulk commodities and offers a real-economy signal on trade flows, freight conditions, and industrial demand.
A systematic book that targets documented investor behaviors — stops, anchoring, month-end flows — rather than a generic trend equation.
Capital Controls — Official restrictions on cross-border flows that reprice FX basis and investability.
Capital expenditure is cash spent to buy or extend long-lived assets — the investing outflow that depreciation later shadows.
The cash-flow statement splits period cash into operating, investing, and financing — the bridge from accrual earnings to the bank account.
When too many trend books own the same contract the same way, entries get worse, exits gap, and ‘the CTA unwind’ becomes a flow event.
Dealer gamma positioning describes whether option dealers are structurally long or short gamma, shaping how hedging flows amplify or dampen market moves.
Deposit outflow rate measures the pace at which deposits leave the banking system or individual banks, helping assess funding stability and confidence.
Dutch disease is the squeeze on tradable non-resource sectors when a resource boom or capital inflow appreciates the real exchange rate and pulls factors into the booming sector.
To fade the move is to take the other side of a fast print — sell a spike, buy a dump — on the view that it is flow or a squeeze, not a new equilibrium.
Fallen Angels — Investment-grade downgrades into high yield, creating forced selling and index rebalancing flows.
Free cash flow is cash from operations minus the capex needed to keep and grow the business — cash that could leave the firm.
GDP is the market value of final goods and services produced in an economy over a period — the size of the flow, not the wealth stock.
A leveraged buyout is a purchase financed mostly with debt on the target’s cash flows — private equity’s standard carry trade on coverage.
Macaulay duration is the present-value-weighted average time to receive a bond’s cash flows — duration in years, before the modified-duration hedge ratio.
A market bubble is a price path driven more by narrative, leverage, and new buyers than by discounted cash flow — obvious after, argued during.
Market Impact Model — Price response to order flow used in optimal execution and capacity estimates.
How price actually forms through order flow, spreads, inventory, and participant interaction.
MBS Prepayment Speed — Refinancing and turnover driven cash-flow uncertainty in agency mortgages.
The mechanics of price formation through order flow, spreads, inventory, and liquidity.