Markets and Instruments
23 articles · 38 glossary terms
What is actually being bought and sold — shares, bonds, currencies, commodities and funds — and the machinery of the exchange that matches the two sides.
Foundations
Start here if the subject is new.What a Stock Actually Is
A share is a legal claim on a company's assets and earnings, ranked behind everyone else with a claim. That ordering explains most of how equities behave.
How a Stock Exchange Works
An exchange is a matching engine surrounded by rules. Understanding the order book, the market maker and the auctions explains why liquidity appears and disappears at particular moments.
Order Types, and What Each One Guarantees
Every order type trades certainty of price against certainty of execution. There is no order that guarantees both, and most execution surprises come from expecting one to.
The Bid-Ask Spread
The spread is the price of immediacy, paid on every round trip. It is also the most reliable live read on how liquid a stock actually is.
Market Hours, Premarket and After-Hours
US equities trade for six and a half regular hours and many more extended ones. The extended sessions run on different rules, thinner books and prices that frequently do not survive the open.
Market Capitalization
Market cap is price multiplied by share count. It is the market's price for the whole equity, and it is the single most useful number for deciding whether two companies are comparable at all.
ETFs, Index Funds and Mutual Funds
A fund is a basket sold as one security. The differences that matter are how it trades, what decides its holdings, and what it charges.
Intermediate
Assumes the foundations above.Float and Shares Outstanding
Shares outstanding is every share in existence. Float is the portion actually available to trade, and the gap between the two explains a great deal of unusual price behaviour.
Bonds: Coupon, Par, Price and Yield
A bond is a loan cut into tradable pieces. Its price and its yield move in opposite directions by arithmetic necessity, and that single fact drives most of what happens in fixed income.
The Treasury Yield Curve
The curve plots what the US government pays to borrow across every maturity. Its level, its slope and its changes are the most watched picture in macro.
Foreign Exchange and the Dollar
Currencies are quoted in pairs, so every quote is a ratio between two things that both move. For equity traders the dollar is the pair that matters most.
How Commodities Trade
Commodities trade mostly as futures with delivery dates, which introduces a cost of carry that equities simply do not have.
OTC Markets and the Tiers Beneath the Exchanges
Thousands of securities trade without an exchange listing, under tiers that differ enormously in how much a buyer is entitled to know.
Short Selling, Borrow and Short Interest
Selling short means selling borrowed stock. The borrow, the cost of carrying it and the disclosure schedule together explain most of what makes crowded shorts behave the way they do.
Options: Calls, Puts, Strikes and Expiry
An option is a right with a deadline. Because it expires, its value decays with time as well as moving with price, which is what makes it behave unlike a share.
Dilution, Offerings and Reverse Splits
Companies that need cash sell shares, and every new share issued shrinks the claim attached to the existing ones. All of it is disclosed, usually before it happens.
ADRs and Foreign Listings
A way of holding a foreign company through a US-listed security. The wrapper introduces a ratio, a fee, a currency exposure and a sponsor.
Circuit Breakers and Halts
Mechanisms that stop trading, at the market level and at the individual security level. They pause the market rather than preventing the move.
Settlement and Clearing
A trade is agreed in an instant and completed a day later. What happens in between involves a clearing house that stands between the two sides.
How an Index Is Built
An index is a set of rules about what to include and how to weight it. Those rules determine what the index measures and produce mechanical flows when they change.
Going Public: IPO, Direct Listing and SPAC
Three routes to a public listing, with different mechanics, different disclosure and different consequences for the shares that arrive on the market.
Advanced
Detail, edge cases and methodology.Short Sale Rules and Restrictions
Short selling is permitted and constrained. The constraints are specific, they change during stress, and they affect what is possible rather than what is advisable.
ECNs, Dark Pools and Market Fragmentation
Trading in a single security happens across dozens of venues. Some display their quotes and some do not, and the consolidated picture is assembled from all of them.