ABSTRACT:

In the latter half of the 19th century bucket shops sprouted across the country. Bucket shops were places where traders could buy and sell shares and speculate simply on the basis of the changing prices. In the last decade of the 20th century, the internet facilitated the emergence of on-line investing, electronic trading, and speculation on intra-day price movements. A a result dramatic changes are occuring in financial markets. Through the internet investors around the world have the ability to execute trades without having to rely on brokers or be close to major markets. In addition since 1997 the SEC has mandated that the current bid/ask for all stocks traded on the NASDAQ (the National Association of Security Dealers and Quotes) be made public. The real-time dynamics of current bid/ask prices and volumes offered by all market makers will be discussed and modeled in this "day in the life of a stock and a trader". Using self-organizing maps, an unsupervised neural network approach for improving visualization and clustering of data, the non-linear dynamics of stock prices, changing volumes and market maker strategies are modeled. Increased market access, -volatility and -liquidity are creating increased opportunities for a growing number of participants to benefit from intra day price movements. Modeling of these modern day bucket shops provide interesting insights of the investment challenges in the third millenium.