The trading rectangle strategy within book models

We introduce a model of trading where traders interact through the insertio n of orders in the book. This matching mechanism is a collection of the act ivity of agents: They can trade at the market price or place a limit order. The latter is valid until cancelled by the trader; to this end we introduc e a threshold in time after which the probability of the order to be remove d is strongly increased. There is essentially no source of randomness and a ll the traders share a common strategy, what we call trading rectangle. Sin ce there are no fundamentalist rules, it is not so important to identify th e right moment to enter in the market. Much more effort is required to deci de when to sell. The model is able to reproduce many of the complex phenome na manifested in real stock markets, including the positive correlation bet ween bid/ask spreads and volatility. (C) 2001 Elsevier Science B.V. All rig hts reserved.