Market Structure

• Bid-Ask SpreadBeginner6 min read

  The bid-ask spread is the gap between the highest price a buyer is offering (the bid) and the lowest price a seller will accept (the ask).

• LiquidityBeginner7 min read

  Liquidity describes how easily an asset can be bought or sold quickly, in size, without moving its price much.

• VolatilityIntermediate7 min read

  Volatility measures how much, and how quickly, a price moves up and down over a period of time.

• SlippageIntermediate6 min read

  Slippage is the difference between the price you expected when placing an order and the price at which it was actually filled.

• Order BookIntermediate6 min read

  An order book is the live list of buy and sell limit orders waiting at each price on an exchange.

• Market MakerIntermediate6 min read

  A market maker is a firm that continuously quotes both a buying and a selling price, earning the spread and making it easier for others to trade.

• Order FlowAdvanced4 min read

  Order flow is the stream of buy and sell orders reaching a market; order-flow traders study who is trading aggressively and where large orders sit.

• Trading Fees and CommissionsBeginner4 min read

  Trading fees are what you pay to trade — commissions charged per order, the spread, and in some products financing or exchange fees — and they reduce every result.

• Pip ValueIntermediate4 min read

  Pip value is how much money a one-pip move is worth for a given position. For a pair quoted in US dollars, one pip on a 100,000-unit position is worth $10; for other pairs it depends on the exchange rate and your account currency.

• Lot SizeIntermediate4 min read

  Lot size is the standard trading unit of an instrument — for example 100,000 units of currency in a standard forex lot.

• Circuit Breaker and Trading HaltIntermediate4 min read

  A trading halt is a temporary stop in trading. Circuit breakers trigger halts automatically after large moves: in the US, market-wide halts apply if the S&P 500 falls 7%, 13% or 20% in a day, and limit up–limit down price bands pause individual stocks that move too far too fast.

• Maker and Taker FeesIntermediate4 min read

  Exchanges often charge a lower maker fee to orders that add liquidity by resting in the order book, and a higher taker fee to orders that remove liquidity by executing immediately.

• AbsorptionAdvanced3 min read

  Absorption is when large passive orders soak up heavy aggressive buying or selling without the price moving much.

• Aggressive and Passive OrdersAdvanced3 min read

  Aggressive buyers and sellers cross the spread with market orders and take liquidity; passive orders wait in the book as limit orders and provide it.

• Best ExecutionIntermediate4 min read

  Best execution is a broker’s obligation to seek the most favourable terms reasonably available for a client’s order, considering price, speed, likelihood of execution and costs. The precise rules differ by jurisdiction.

• Buy-InAdvanced3 min read

  A buy-in is the forced purchase of shares to close a short position or settle a failed delivery, made by a broker or clearing firm, often without the account holder’s consent and at the prevailing market price.

• Cross RateIntermediate3 min read

  A cross rate is the exchange rate between two currencies, derived from each one's rate against a third currency — usually the US dollar. If EUR/USD is 1.10 and USD/JPY is 150, then EUR/JPY is about 1.10 × 150 = 165.

• Dark PoolIntermediate3 min read

  A dark pool is a private trading venue that does not show orders before they trade. Institutions use dark pools to buy or sell large blocks without revealing their intentions; trades are reported after execution.

• Fails-to-DeliverAdvanced3 min read

  A fail to deliver happens when a seller does not deliver securities by the settlement date. US rules require brokers to close out persistent fails, and the SEC publishes fails data.

• Float RotationAdvanced3 min read

  Float rotation is a day’s trading volume divided by the number of shares available to trade (the float). A stock that trades more than its whole float in a day has rotated it, which usually signals extreme speculative activity.

• Footprint ChartAdvanced3 min read

  A footprint chart shows, inside each candle, how much volume traded at each price and on which side — buyers or sellers.

• Iceberg OrderAdvanced3 min read

  An iceberg order is a large order that shows only a small part in the order book at a time, hiding its true size; such hidden liquidity can absorb big moves.

• Implementation ShortfallAdvanced3 min read

  Implementation shortfall is the difference between the price when you decided to trade and the result you actually achieved, including spreads, market impact, fees and any part of the order that was never filled.

• InternalisationAdvanced3 min read

  Internalisation is when a broker or dealer fills a customer’s order from its own inventory or against another customer, instead of sending it to an exchange.

• Locked and Crossed MarketsAdvanced3 min read

  A market is locked when the best bid equals the best ask, and crossed when the bid is higher than the ask. Both are usually brief, caused by quotes on different venues or delays in data.

• Market ImpactIntermediate3 min read

  Market impact is the price movement caused by your own order. A large market order uses up the best prices and moves the market against you; the bigger the order relative to available liquidity, the larger the impact.

• Spoofing, Layering and Wash TradingIntermediate3 min read

  Spoofing is placing orders you intend to cancel to trick others about supply or demand; layering does this with several orders at different prices. Wash trading is trading with yourself or a related party to create fake volume. All three are forms of market manipulation and are illegal in regulated markets.

• National Best Bid and OfferIntermediate3 min read

  The NBBO is the highest bid and lowest offer for a US stock across all exchanges at a moment in time. Under US rules, brokers generally must not execute customer orders at prices worse than the NBBO.

• Opening and Closing AuctionsIntermediate3 min read

  Many stock exchanges open and close the trading day with an auction: orders are collected and matched at a single price that maximises the volume traded. Market-on-open (MOO) and market-on-close (MOC) orders are designed to execute in these auctions. Closing prices from the auction are used to value funds and indices.

• Order Book ImbalanceAdvanced3 min read

  Order book imbalance compares the volume of resting buy orders with resting sell orders near the current price, as a hint of short-term pressure.

• Payment for Order FlowIntermediate3 min read

  Payment for order flow is when a broker is paid by a market maker for sending it customers’ orders. It helps fund commission-free trading but raises conflict-of-interest questions; US brokers must disclose it in routing reports, and some jurisdictions restrict or prohibit it.

• Price ImprovementIntermediate3 min read

  Price improvement is an execution at a better price than the best quote at the time the order arrived — for example, buying at $50.01 when the best ask was $50.02.

• Queue PositionAdvanced3 min read

  Queue position is your place in line among limit orders at the same price; orders placed earlier are usually filled first.

• Recall RiskAdvanced3 min read

  Recall risk is the chance that the lender of shares you have shorted asks for them back. If your broker cannot find replacement shares, your short position may be closed, sometimes at a bad moment.

• Regular Trading HoursBeginner3 min read

  Regular trading hours are an exchange’s main session — for US stocks, 9:30 a.m. to 4:00 p.m. Eastern time. Sessions before and after are extended hours, with thinner liquidity and wider spreads.

• Self-Trade PreventionAdvanced3 min read

  Self-trade prevention is an exchange feature that stops a trader’s buy and sell orders from executing against each other, which would create artificial volume.

• Short Locate and Borrow AvailabilityIntermediate3 min read

  Before a short sale, US brokers generally must have reasonable grounds to believe the shares can be borrowed — a “locate”. Borrow availability is how many shares lenders have available, and hard-to-borrow stocks have few, which makes borrowing expensive.

• Short RebateAdvanced3 min read

  A short rebate is interest paid back on the cash collateral from a short sale. For easy-to-borrow stocks it can be positive for large institutions; for hard-to-borrow stocks the borrow fee can make it negative. Retail brokers often pay no rebate.

• Smart Order RoutingAdvanced3 min read

  Smart order routing is software that decides where to send an order — or how to split it across venues — to get the best available price and fill, taking into account quotes, fees and depth.

• Tick SizeIntermediate3 min read

  Tick size is the smallest price increment an instrument can move in, such as $0.01 for many US shares or 0.25 points for some index futures.

• Tick Volume and Real VolumeAdvanced2 min read

  Real volume counts the units actually traded; tick volume counts price changes and is used as a proxy where real volume is unavailable, as in spot forex.

• Time and SalesAdvanced2 min read

  Time and sales is the live list of every executed trade with its price, size and time; reading it to gauge buying and selling pressure is called tape reading.

• Trade BustAdvanced2 min read

  A trade bust is the cancellation of an executed trade by the exchange, usually because the price was clearly erroneous under the venue’s rules.

• Volume DeltaAdvanced2 min read

  Volume delta is aggressive buy volume minus aggressive sell volume over a period; cumulative volume delta (CVD) is its running total.

• Pump and DumpBeginner4 min read

  A pump and dump is a fraud where promoters buy a cheap, thinly traded asset, hype it with false or misleading claims to push the price up, then sell their holdings to the buyers they attracted. The price usually collapses afterwards.

Each term is defined in one sentence. Terms marked “Article in preparation” will get a full step-by-step article.

• American Depositary Receipt

  IntermediateGlossary

  An American depositary receipt is a certificate issued by a US bank that represents shares of a foreign company. It lets that company's shares trade on US markets in dollars, though holders still carry currency risk and may pay depositary fees.

• Basel III

  AdvancedGlossary

  Basel III is the international set of bank capital and liquidity rules written after the 2008 crisis by the Basel Committee on Banking Supervision. It makes banks hold more and better-quality capital and enough liquid assets to survive a 30-day funding squeeze.

  Rules differ between countries; this is general information, not tax or legal advice.

• Bear Raid

  IntermediateGlossary

  A bear raid is an attempt to drive a stock down through heavy short selling, often combined with negative rumours, so the raiders can buy back cheaply. Spreading false information to do so is illegal market manipulation.

• Block Trade

  IntermediateGlossary

  A block trade is a very large order — for shares, often 10,000 or more — usually negotiated privately between institutions and reported afterwards, so the size does not move the market as it would on the open order book.

• Boiler Room

  BeginnerGlossary

  A boiler room is a high-pressure sales operation that cold-calls people to push dubious or worthless investments, often with scripted urgency and promises of quick profits.

• Broker Regulation

  BeginnerArticle in preparation

  A broker's licence decides how well you are protected: strong regulators require capital buffers, separate client money, fair-dealing rules and complaint schemes. Verify the licence number on the regulator's own website — offshore licences offer little help if things go wrong.

  Rules differ between countries; this is general information, not tax or legal advice.

• Bucket Shop

  IntermediateGlossary

  A bucket shop takes customers' orders without sending them to the real market and instead bets against its own customers. The practice is illegal, but some unregulated online brokers behave in a similar way.

• Churning

  IntermediateGlossary

  Churning is a broker trading excessively in a client's account to earn commissions rather than to serve the client. It is illegal; warning signs are frequent trades you did not expect and commissions that eat most of the returns.

• Commodity Futures Trading CommissionCFTC

  IntermediateArticle in preparation

  The Commodity Futures Trading Commission is the US federal agency that regulates futures, options on futures and most swaps. It was created in 1974 to protect market users from fraud and manipulation in derivatives markets.

• Consolidated Tape

  AdvancedGlossary

  The consolidated tape is the combined real-time feed of trades and quotes from every US exchange and trading venue for a stock. It is the basis for the NBBO and for the volume figures most charts show.

• Cornering the Market

  IntermediateGlossary

  Cornering a market means buying up so much of an asset or its futures that others who need it — such as short sellers — must buy from you at your price. The Hunt brothers' attempt on silver in 1979–80 is the classic case; such schemes are illegal manipulation today.

• CUSIP and ISINCUSIP · ISIN · SEDOL

  IntermediateGlossary

  CUSIP and ISIN are codes that identify a specific security. A CUSIP is a 9-character code for US and Canadian securities; an ISIN is a 12-character international code that often contains the CUSIP.

• Dealing Desk and No Dealing DeskNDD

  IntermediateArticle in preparation

  A dealing-desk broker fills your orders from its own book and often holds the opposite position, so it profits when clients lose (the B-book). An STP or ECN broker instead passes orders to banks and other liquidity providers (the A-book). Many firms mix both models.

• Dual Listing

  IntermediateGlossary

  A dual-listed company has its shares traded on two or more exchanges, often in different countries and currencies. Prices on each venue are tied together by arbitrage but can drift slightly because of exchange rates and trading hours.

• Dutch Auction

  AdvancedGlossary

  In a Dutch auction for securities, bids are collected and a single clearing price is set at which all the shares offered can be sold, and every successful bidder pays that price. It is used for some IPOs, share buybacks and government bond auctions.

• Electronic Communication NetworkECN

  IntermediateGlossary

  An electronic communication network automatically matches buy and sell orders between participants without a traditional market maker. Some brokers advertise “ECN accounts”, which pass orders to such venues for raw spreads plus a commission.

• ESMA

  IntermediateGlossary

  ESMA, the European Securities and Markets Authority, is the EU's securities-market regulator, based in Paris. It sets common rules across member states — for example the 2018 limits on CFD leverage for retail traders — and supervises some firms directly.

  Rules differ between countries; this is general information, not tax or legal advice.

• Fast Market

  IntermediateGlossary

  A fast market is a period of such heavy, rapid trading that quotes lag behind real prices. Brokers may warn that fills can differ widely from the prices on screen and that stop orders may be filled far away.

• Fat-Finger Error

  BeginnerGlossary

  A fat-finger error is a keying mistake — an extra zero, the wrong price — that sends a wildly wrong order. In 2005 a Mizuho trader sold 610,000 shares at ¥1 each instead of one share at ¥610,000. Order-size limits and confirmations guard against it.

• Fiduciary Duty

  IntermediateGlossary

  A fiduciary must put a client's interests ahead of their own — avoiding conflicts, keeping costs reasonable and disclosing what they are paid. Not every adviser or broker is held to that standard, so it is worth asking.

  Rules differ between countries; this is general information, not tax or legal advice.

• Financial Conduct AuthorityFCA

  IntermediateGlossary

  The Financial Conduct Authority regulates financial firms and markets in the UK. Before using a UK broker, traders can check the FCA register to confirm the firm is authorised and see which activities it is allowed to carry out.

• FINRA

  IntermediateArticle in preparation

  FINRA, the Financial Industry Regulatory Authority, is the self-regulatory organisation that oversees US broker-dealers under the SEC. It licenses brokers, writes conduct rules, and runs BrokerCheck, where investors can look up a broker's record.

• Flash Crash

  IntermediateArticle in preparation

  A flash crash is a collapse in prices over seconds or minutes, often recovering almost as fast, caused by vanishing liquidity, automated selling or a huge erroneous order. The US stock market's May 2010 crash is the best-known example; stops can fill at shocking prices.

• Front Running

  IntermediateGlossary

  Front running is trading ahead of a large order you know is coming — for example a broker buying before filling a client's big buy order — to profit from the price move it causes. It is illegal for brokers; in crypto, a related practice appears as MEV.

• Grey Market

  IntermediateGlossary

  A grey market is unofficial trading in shares before they are formally listed, most often new IPO shares, through dealers or informal deals. Grey-market prices hint at first-day demand but carry no exchange protections.

• Index Inclusion and Rebalancing

  IntermediateGlossary

  When an index adds, removes or reweights a stock, funds that track it must trade to match. Inclusion can create heavy buying on the effective date, which traders try to anticipate and which often fades afterwards.

• Information Barrier

  IntermediateGlossary

  An information barrier, traditionally called a Chinese wall, separates parts of a financial firm — for example deal-making bankers from traders and analysts — so confidential information cannot be used for trading or research.

• Insider Trading

  BeginnerArticle in preparation

  Illegal insider trading is buying or selling a security while holding material, non-public information about it. Insiders such as directors may trade legally within the rules, but in the US they must report their trades, usually within two business days.

  Rules differ between countries; this is general information, not tax or legal advice.

• Interbank Market

  IntermediateGlossary

  The interbank market is where big banks trade currencies with each other in large sizes at the tightest prices, mostly over electronic platforms. Retail brokers' quotes are ultimately built on these prices plus a markup.

• Investment Bank

  BeginnerGlossary

  An investment bank helps companies and governments raise money by underwriting stock and bond issues, advises on mergers, and often runs trading and research divisions. It earns fees rather than mainly lending like a commercial bank.

• Last Look

  AdvancedGlossary

  Last look is a practice in currency markets where a liquidity provider gets a brief window after receiving an order to fill it or reject it. It protects dealers from stale prices but can mean rejected or delayed fills when markets move quickly.

• Market Microstructure

  AdvancedGlossary

  Market microstructure studies how the mechanics of trading — order types, matching rules, market makers, fees and information — shape prices, spreads and liquidity. It explains why the same trade can cost different amounts on different venues.

• MiCA RegulationMiCA · MiCAR · CASP

  IntermediateArticle in preparation

  The EU's Markets in Crypto-Assets regulation, in full force since 30 December 2024, licenses crypto service providers and sets rules for issuers. A provider licensed in one member state can serve the whole EU, and euro and dollar stablecoins must meet reserve and disclosure rules.

  Rules differ between countries; this is general information, not tax or legal advice.

• National Futures Association

  AdvancedGlossary

  The National Futures Association is the self-regulatory organisation for the US derivatives industry. Futures brokers, commodity trading advisors and forex dealers serving US customers must register with it, and its BASIC database shows their records.

• Netting

  AdvancedGlossary

  Netting offsets what two parties owe each other so only the net difference changes hands. Close-out netting does the same for all open contracts if one side defaults, which greatly reduces counterparty exposure.

• Odd Lot and Round Lot

  BeginnerGlossary

  A round lot is the standard trading unit — traditionally 100 shares for US stocks — and an odd lot is any smaller order. Odd lots used to be treated less favourably, but in fractional and commission-free trading they are now routine.

• Open Outcry

  BeginnerGlossary

  Open outcry is the traditional way of trading in which floor traders in a pit shouted bids and offers and used hand signals. Electronic trading has replaced almost all of it.

• Over-the-Counter MarketOTC

  IntermediateArticle in preparation

  Over-the-counter trading happens directly between two parties or through dealer networks instead of on an exchange. Most bonds, currencies and swaps trade this way, as do small stocks not listed on a major exchange.

• Painting the Tape

  IntermediateGlossary

  Painting the tape is placing trades — often between colluding parties — to create a false picture of activity or price, luring others in. Marking the close, trading to push the closing price, is a related trick. Both are illegal manipulation.

• Ponzi and Pyramid Schemes

  BeginnerArticle in preparation

  A Ponzi scheme pays earlier investors with money from new investors instead of real profits, so it collapses once new money dries up. A pyramid scheme pays people mainly for recruiting others. Both promise high, steady returns with little risk.

• Price Discovery

  IntermediateGlossary

  Price discovery is how a market settles on a price as buyers and sellers react to new information and to each other's orders. It is fastest in deep, open markets and around news; in thin or closed markets, prices can lag reality.

• Primary and Secondary Market

  BeginnerArticle in preparation

  In the primary market, companies and governments sell newly created securities to investors, as in an IPO. In the secondary market, investors then trade those securities with each other, which is what most exchange trading is.

• Prime Broker

  AdvancedGlossary

  A prime broker is a large bank that bundles services for hedge funds: financing and leverage, lending shares for short sales, custody, clearing and reporting. When a big client fails, as Archegos did in 2021, its prime brokers can take heavy losses.

• Program Trading

  IntermediateGlossary

  Program trading is computer-executed buying or selling of a large basket of stocks at once, often for index arbitrage or portfolio rebalancing. The NYSE historically defined it as trading 15 or more stocks worth $1 million or more together.

• Quote Stuffing

  AdvancedGlossary

  Quote stuffing is flooding an exchange with huge numbers of orders that are cancelled almost at once, to clog data feeds and slow down other traders. Regulators treat it as manipulative, and exchanges cap message rates to prevent it.

• Requote

  IntermediateGlossary

  You click buy at one price and the platform answers with a different one, asking you to accept it — that is a requote. It mostly happens with dealing-desk brokers in fast markets; brokers using market execution fill at the new price with slippage instead.

• Restricted Securities

  AdvancedGlossary

  Restricted securities are shares bought in unregistered private sales, often by insiders and early investors, that cannot be freely resold until conditions are met — in the US, typically a holding period under Rule 144.

  Rules differ between countries; this is general information, not tax or legal advice.

• Securities and Exchange CommissionSEC

  BeginnerArticle in preparation

  The Securities and Exchange Commission is the US federal regulator of securities markets, created in 1934. It writes and enforces securities laws, oversees exchanges and brokers, and requires public companies to disclose their financial results.

• Securities Lending

  AdvancedGlossary

  Securities lending is the loan of shares or bonds to another party — often to support short selling — in exchange for collateral and a fee. Brokers may lend customers' shares, sometimes sharing the income with them.

• Segregated Client Accounts

  IntermediateGlossary

  Well-regulated brokers must hold customers' money in bank accounts separate from the firm's own cash. If the broker goes bust, that money is not available to its creditors, which makes it far easier to get back.

  Rules differ between countries; this is general information, not tax or legal advice.

• Self-Regulatory OrganizationSRO

  AdvancedGlossary

  A self-regulatory organisation is a non-government body with the power to write and enforce rules for its own members, under a government regulator's oversight. FINRA, the NFA and the exchanges themselves are examples.

• Shadow Banking

  AdvancedGlossary

  Shadow banking is lending and borrowing that happens outside regulated banks — through money-market funds, hedge funds, private-credit funds and other vehicles. It adds credit to the economy but can suffer runs without a bank's safety nets.

• Shell Company

  IntermediateGlossary

  A shell company has few or no operations or assets. Listed shells are used for reverse mergers and SPACs; offshore shells can be legitimate holding structures but are also used to hide ownership, so they draw scrutiny.

• SIPC ProtectionSIPC

  BeginnerGlossary

  The Securities Investor Protection Corporation protects customers of a failed US brokerage firm, generally up to $500,000 per customer, including up to $250,000 in cash. It returns missing assets; it does not cover losses from falling prices.

  Rules differ between countries; this is general information, not tax or legal advice.

• Stock Market Crash

  BeginnerArticle in preparation

  A crash is a sudden, steep fall in a market, usually driven by panic as well as bad news. On Black Monday, 19 October 1987, the Dow lost 22.6% in a single day; other crashes include 1929, 2008 and March 2020.

• Street Name

  IntermediateGlossary

  Holding shares in street name means your broker is the registered owner on the company's books while you are the beneficial owner in your account. It makes trading and transfers easy; protection depends on the broker's segregation rules.

• Tape Reading

  AdvancedGlossary

  Tape reading is judging supply and demand in real time from the time and sales feed and the order book — the size, speed and price of trades as they print. It is the modern form of reading the old ticker tape.

• Travel Rule

  IntermediateGlossary

  Under the Travel Rule, an exchange sending crypto to another regulated provider must attach who is sending and who is receiving — the same idea that applies to bank wires. It stems from FATF standards and has applied to crypto transfers in the EU since 30 December 2024.

  Rules differ between countries; this is general information, not tax or legal advice.

• Triple Witching

  IntermediateGlossary

  Triple witching is the third Friday of March, June, September and December, when stock options, stock index options and stock index futures all expire on the same day. Trading volume is usually heavy and prices can swing near the close.

• Uptick RuleSSR

  IntermediateGlossary

  In the US, the alternative uptick rule (SEC Rule 201) kicks in when a stock falls 10% or more from the previous close: for the rest of that day and the next, short sales are allowed only at a price above the best bid.

  Rules differ between countries; this is general information, not tax or legal advice.

• Virtual Asset Service ProviderVASP

  AdvancedGlossary

  VASP is the international anti-money-laundering label (from FATF) for firms that exchange, transfer or safeguard crypto for customers. Being a VASP brings duties such as identity checks, suspicious-activity reporting and the Travel Rule.

• Volcker Rule

  AdvancedGlossary

  The Volcker Rule, part of the 2010 Dodd-Frank Act, restricts US banks from short-term proprietary trading for their own account and limits their investments in hedge funds and private equity funds.

  Rules differ between countries; this is general information, not tax or legal advice.