Getting introduced to the world of trading as a mathematician

Question

I'm a mathematics undergrad. My economic/financial knowledge is very rudimentary because this world has never caught my attention - until now.

I like algorithms. I'm a good programmer and know machine learning.

This so far is my current situation; now for my goal. There's a clear interest to me in learning how to algorithmically predict the evolution of the price of some asset. I believe I can learn a damn lot in the journey and eventually make some profit.

Big challenge (sure, I'm not here to discuss that), big reward.

I think I'll need more that computer science and math knowledge in order to reach this goal of mine. Surely I'll have to understand to some extent the inner workings of the financial market, what a broker is, how the orders are processed, how do fees / interests get paid, what's the expected time before an buy order meets a sell order, etc. (I'm giving examples of doubts that come to my mind. Also the terms used might be in some cases broad or inaccurate. Please excuse me but so is my knowledge about the subject. Also I'm not familiar with the terms in English as I live in Spain.)

So I'm looking for a book or any kind of resource that will address the basic concepts that I need in order to make informed choices in reaching my goal. I think I need to learn more about the following two subjects.

• A general view. The basic inner workings of the financial world. The basic agents and the relationships between them. The position of the individual investor in this scheme. The main goods/assets that get exchanged in this network.
• An intro to trading. The generalities of mid-term trading. Basic concepts of trading and details on how a subject goes about purchasing or selling an asset and what their possible actions are (short sell, long sell, etc). Broker fees, interests of loans when selling short.
• Trading strategies. When I hopefully have understood the previous concepts, I'll need to know some perhaps advanced and possibly math-knowledge-demanding strategies.

What are the best reads that will address these questions, given my background?

Answer 1

The short answer is that a majority of traders lose money and only small portion of the remainder consistently make money. So if you have dreams of pie in the sky easy money, stop now.

If you are going to trade, you have a lot to learn and it's impossible to distill it into a brief answer here. Broadly speaking, you're going to have to learn financial terminology and what they mean in the process of trading.

You'll need to learn about money management (manage gains, limit losses). Trade small until you have consistent success.

You'll need to learn about yourself as well (emotions and reactions). When your positions are stressed, can you think clearly and react calmly rather than emotionally?

You'll have to figure out what and how you want to trade. From the long side, short side or both? Pairs trades? Options? Equities? Futures? For equities, will you trade earnings announcements? News of the day? Will it be based on technical analysis (my two cents is not to spend a lot of time on this one).

Fundamentals will play a small role, if any, in trading. They apply to investors.

The functional mechanics of the market are mostly irrelevant to trading (what a broker is, how the orders are processed, what's the expected time before an buy order meets a sell order, the basic inner workings of the financial world, the basic agents and the relationships between them, the position of the individual investor in this scheme, the main goods/assets that get exchanged in this network).

For the first 20+ years of my adventure, I was an investor with occasional trades. Then I began to trade a bit more, increasing it as I learned more and felt more confident about what I was doing. I retired in my early 50s and my goal was trading gains to augment other sources of income so that I could avoid spending down my nest egg. For the most part, I've done that for 20+ years, occasionally increasing it significantly. It can be done.

Understanding financial markets is like learning a foreign language. It takes time and effort, something most people don’t do and therefore, they lose money. Start with beginner material like the series of Investing For Dummies books. Read articles at Investopedia, Seeking Alpha, financial blogs, etc. Tune out the talking heads who predict the market. As you understand more, read more comprehensive books in areas of the market that interest you.

If you get a good handle on all of this, then move on to algorithms, etc.

FWIW, your question is likely to be closed because this crowd does not think much of trading.

Good luck.