For experienced investors For experienced investors
Pro Desk: Market Microstructure, Factors, Volatility and Sizing
The guides here assume you know what a limit order, a P/E ratio and a put option are. They cover how the market is actually plumbed, how professionals size and hedge, and how to read the signals that never make the evening news.
The Pro Desk covers what sits underneath the retail-facing explanations: how prices form inside an order book, which return factors are documented and why they go quiet for years at a time, how volatility is priced and traded, how dealers hedging options affect the tape, and how professionals size a position. It also covers short selling, pairs trading, macro regimes and the accounting signals that tend to appear before a story breaks.
It is written for experienced investors. The guides assume you know what a limit order, a P/E ratio and a put option are, and they do not stop to redefine them. If any of the first three sections still feel new, the material here will be hard to use, since most of it concerns the second-order effects of mechanisms covered elsewhere on the site. Every guide shows its arithmetic in full.
The microstructure pillar is the foundation, because adverse selection and spread decomposition explain why execution costs what it does and why a large order moves the price against itself. Factor investing and volatility follow as the two research-heavy topics, and options flow builds on both. Kelly and position sizing then sets a ceiling on how much of an edge you can safely bet. Pairs trading, macro regimes, fed funds futures, short selling and earnings quality can be read in any order.
Each guide here has a simpler parent elsewhere. Microstructure extends the market makers guide, volatility extends implied volatility, Kelly extends the 1% rule from trading strategies, and fed funds futures extend the Fed pillar. Read the parent first whenever a concept feels unfamiliar, because the advanced version assumes the mechanism and discusses only what is unusual about it. The Kelly and short selling calculators run the arithmetic from these pages.
Market Microstructure: How Prices Actually Form
A price is the output of a queue, an auction and a set of dealers pricing the risk that you know something they do not. Here is the machinery underneath the last trade.
Read the guide →Advanced
- advanced
Factor Investing: Value, Momentum, Quality, Size and Low Volatility
A factor is a rule for sorting stocks and a return series attached to that rule. Here are the formulas, one worked attribution, and an honest account of how long the bad stretches run.
- advanced
Volatility and the VIX: What It Measures and How It Is Traded
VIX 20 is a statement about a 5.8 percent move over the next month. Turning that statement into a position runs through futures, roll yield and a product that once lost almost everything overnight.
- advanced
Options Flow, the Put/Call Ratio and Gamma Exposure
A large options print tells you less than the alert says it does. Dealer hedging flows tell you more, and they can be computed from open interest with one line of arithmetic.
- advanced
The Kelly Criterion and Position Sizing Beyond the 1% Rule
Kelly answers a question the 1 percent rule never asks: given an edge, what fraction of capital maximizes long run growth? The answer is computable, and it is almost always too large to use.
- advanced
Pairs Trading and Statistical Arbitrage
A pair trade is a bet that a computed spread reverts. Here is the regression that gives you the hedge ratio, the z-score that gives you the entry, and the reasons the relationship stops holding.
- advanced
Macro Regimes: Growth, Inflation and What Works in Each Quadrant
Two variables, four boxes. The framework is old, the historical record behind it is thinner than it looks, and its main value is telling you which risk your portfolio is quietly concentrated in.
- advanced
Fed Funds Futures and the Dot Plot: Reading What the Market Expects
The market's expected rate path is a published number you can compute yourself from futures prices. The committee's own projection is a different number, and the gap between them is tradeable.
- advanced
Short Selling Explained: Borrow, Locate, Squeeze and Unlimited Risk
Selling something you do not own involves a lender, a locate, a fee that accrues daily and a loss profile with no upper bound. Here is every piece of it with the numbers attached.
- advanced
Earnings Quality: Accruals, Cash Flow Gaps and Accounting Red Flags
Reported profit is an opinion expressed in a number. Cash is a fact. The distance between the two is measurable, and it has been one of the more durable predictors of disappointment.
Pro Desk: common questions
What is market microstructure?
The study of how trading rules, order flow and dealer behaviour turn intentions into prices. It explains bid-ask spreads, price impact, adverse selection and why identical orders get different fills across venues.
Does factor investing still work?
The value, momentum, quality, size and low volatility premia are documented across long samples and many markets. Each has gone through decade-long stretches of underperformance, and crowding after publication appears to have shrunk several of them.
What does the VIX actually measure?
The market's expectation of S&P 500 volatility over the next 30 days, calculated from a strip of index option prices. It is an implied figure derived from what traders pay for options, with no view on direction.
What is the Kelly criterion?
A formula for the bet size that maximizes long-run growth given your edge and your odds. Practitioners use a fraction of it, often a half or a quarter, because overestimating the edge produces severe drawdowns.
How risky is short selling?
Losses are unbounded, since a stock can rise without limit while the most you can gain is 100%. You also pay borrow fees, can have the borrow recalled at any time, and owe any dividends paid while you are short.