A Simulation Model for Studying the Influence of Algorithmic Trading and Vending Machines on the State of the Stock Market

Gennady Perminov
(Department of Business-analysts, Higher School of Economics, National Research University, Moscow, Russia)

Abstract: This paper investigates the impact of algorithmic trading on the securities behavior in the stock market. To conduct the study and to identify this influence a computer simulation agent-based model of the stock exchange was developed. In a series of tests we study the effect of different combinations of trading algorithms on market behavior. The model consists of a kernel that performs basic functions and operations essential for the exchange, and an open set of trading algorithms. In this study, the model does not include margin trading, short positions, market makers, commissions, medium-and long-term trends. In the constructed model of algorithmic trading there is only one security studied. It is isolated from news factors, companies’ reports, dividend payments, macroeconomic statistics, and also from other quotes, currency pairs, prices for raw materials.

Key words: algorithmic trading; vending machines; a simulation model of the stock market; market liquidity

JEL code: G23