Glossary topic
Market Structure
79 terms
Why this topic matters
Market structure explains how orders meet: displayed quotes, spreads, liquidity, brokers, exchanges, off-exchange venues, and the rules that turn an order into a reported execution.
This shelf gives flow and price action their plumbing. A print means more when you know the quote it traded against, the venue that handled it, and the liquidity conditions surrounding the fill.
Topic questions
Market Structure FAQ
A
5 termsAdverse Selection
Adverse selection is the cost a quoting firm bears when better-informed traders choose which resting quotes to take, and one reason bid-ask spreads exist.
Alternative Trading System (ATS)
An alternative trading system (ATS) is an SEC-regulated venue that matches securities orders outside a national securities exchange under broker-dealer rules.
American Depositary Receipt (ADR)
An American Depositary Receipt (ADR) is a dollar-denominated receipt that trades in the U.S. and represents shares of a foreign company held by a depositary bank.
Arbitrage
Arbitrage is the practice of buying and selling the same asset, or economically equivalent packages of assets, at different prices to capture the difference.
Authorized Participant
An authorized participant (AP) is a firm with a written agreement to create and redeem ETF shares directly with the fund in blocks called creation units.
B
3 termsBest Execution
Best execution is a broker-dealer duty to use reasonable diligence to seek the most favorable customer result under prevailing market conditions.
Bid, Ask, and Midpoint
The bid is the highest displayed price buyers will pay, the ask is the lowest displayed price sellers will accept, and the midpoint is the average of those two quotes.
Broker
A broker is a firm that executes securities transactions for its customers, routing each order to an execution venue and reporting the fill and resulting position.
C
2 termsClosing Auction
A closing auction matches eligible buy and sell orders at a single price at the end of regular trading to set the official closing price of an exchange-listed security.
Commission
A commission is the charge a broker collects for executing an order, quoted as a flat ticket fee, a per-share or per-contract rate, or a percentage of trade value.
D
3 termsDark Pool
A dark pool is a trading venue that matches stock orders without publishing its resting order book, operating in U.S. equities as an alternative trading system.
Dark Pool Print
A dark pool print is the public trade report of a stock execution associated with dark-pool activity, showing its price, share quantity and time.
Direct Market Data Feed
A direct market data feed is an exchange data product that streams events such as orders, trades and auctions from the venues it covers in venue-specific detail.
E
1 termF
5 termsFail-to-Deliver
A fail-to-deliver occurs when the party obligated to deliver shares does not deliver them by settlement date, leaving an open delivery obligation at the clearing agency.
Fill-or-Kill Order
A fill-or-kill (FOK) order is an instruction to execute the entire quantity immediately at acceptable prices or cancel the whole order with no partial fill.
Financial Industry Regulatory Authority (FINRA)
The Financial Industry Regulatory Authority (FINRA) is a private self-regulatory organization that oversees U.S. member broker-dealers under SEC supervision.
Footprint Chart
A footprint chart shows the volume traded at each price inside every bar; a bid-ask footprint also splits it into trades that hit the bid and trades that lifted the ask.
Free Float
Free float is the number of shares available for public trading, equal to shares outstanding minus the excluded strategic holdings of a share class.
G
1 termH
2 termsHard-to-Borrow
A hard-to-borrow stock is one whose lendable supply is scarce enough that a broker charges an elevated borrow rate to short it, or cannot supply a locate at all.
High-Frequency Trading (HFT)
High-frequency trading (HFT) is professional proprietary trading that uses very low-latency technology to submit, cancel, and execute large numbers of short-lived orders.
I
3 termsIceberg Order
An iceberg order is a limit order that displays only part of its total quantity on the order book, holding the rest in reserve and replenishing the display as it fills.
Immediate-or-Cancel Order
An immediate-or-cancel (IOC) order is an instruction to execute whatever quantity is available immediately at acceptable prices and cancel the unfilled remainder.
Insider Trading
Insider trading covers legal, reported trades by corporate insiders and illegal trading on material nonpublic information in breach of a duty of trust or confidence.
L
6 termsLee-Ready Algorithm
The Lee-Ready algorithm is a 1991 trade classification rule that signs trades as buyer or seller initiated using the quote midpoint, with the tick rule breaking ties.
Level 2 Market Data
Level 2 market data is a quote feed that shows displayed bids and offers at several price levels, by market participant or venue, not just the best bid and offer.
Limit Order
A limit order is an instruction to buy or sell at a set price or better, capping the price paid on a buy and setting the minimum price received on a sell.
Limit Up Limit Down
Limit Up Limit Down (LULD) is the U.S. equity mechanism that uses dynamic price bands to keep trades in an individual NMS stock inside a permitted range.
Liquidation
Liquidation is the closing of trading positions or the sale of assets for cash, either by choice or by a broker enforcing a margin agreement.
Liquidity
Liquidity is the ease of trading an asset in the intended size at available prices, reflected in its bid-ask spread, displayed depth, volume and execution cost.
M
10 termsMaker-Taker Pricing
Maker-taker pricing is an exchange fee model that pays a rebate to orders that post resting liquidity and charges a fee to the orders that execute against them.
Margin
Margin is the use of brokerage credit and account collateral to carry positions, subject to Regulation T, FINRA and broker equity requirements.
Margin Call
A margin call is a broker’s demand that an account meet an initial, maintenance or house margin requirement by adding cash or securities or reducing positions.
Market Depth
Market depth is the displayed quantity available to buy and sell a security across multiple price levels, starting at the best bid and offer.
Market Impact
Market impact is the price movement a trader’s own order causes by demanding liquidity, pushing prices up while buying and down while selling.
Market Maker
A market maker is a dealer or registered exchange participant that regularly stands ready to buy and sell designated securities for its own account.
Market Order
A market order instructs a broker to buy or sell a security promptly at the best prices reasonably available, without setting a maximum buy or minimum sell price.
Market-on-Close Order
A market-on-close (MOC) order is an instruction to buy or sell a stock in the exchange’s closing auction at the auction price, without a limit price.
Market-Wide Circuit Breaker
A market-wide circuit breaker coordinates a broad U.S. trading halt when the S&P 500 Index falls 7%, 13%, or 20% from its prior closing level.
Microprice
Microprice is an order-book price estimate, commonly computed as a midpoint that weights the best ask by bid size and the best bid by ask size.
N
3 termsNaked Short Selling
Naked short selling is a short sale in which the seller does not borrow or arrange to borrow the shares in time to deliver them at settlement.
National Best Bid and Offer (NBBO)
The national best bid and offer (NBBO) is the highest displayed bid and lowest displayed offer for an NMS security across eligible U.S. trading venues.
NYSE
The New York Stock Exchange (NYSE) is a U.S. securities exchange that combines electronic order matching with a physical trading floor and designated market makers.
O
8 termsOdd Lot
An odd lot is an equity order or quotation for fewer shares than the security’s current round-lot size under the applicable market rules.
Off-Exchange Short-Volume Ratio
An off-exchange short-volume ratio is reported short-sale volume divided by reported total volume for the same security, trading date and reporting coverage.
Opening Auction
An opening auction aggregates eligible orders and matches the greatest executable quantity at one price to establish an exchange-listed security’s official opening trade.
Order Book Imbalance
Order book imbalance is a microstructure measure that compares displayed bid and ask sizes to show which side of the order book holds more displayed liquidity.
Order Flow Toxicity (VPIN)
Order flow toxicity is the adverse selection liquidity providers face from informed traders, and VPIN estimates it from buy-sell imbalance in equal-volume buckets.
Order Imbalance
An order imbalance is the excess eligible buy or sell quantity that cannot currently be paired at a reference price in an auction or other matching process.
Order Internalization
Order internalization is a broker-dealer filling a customer order against its own inventory or in-house order flow instead of sending it to a public exchange.
Over-the-Counter (OTC)
Over-the-counter (OTC) trading is buying and selling securities and contracts through dealers or direct negotiation instead of on a centralized exchange order book.
P
5 termsPattern Day Trader Rule
The pattern day trader (PDT) rule is FINRA’s legacy framework of a day-trade count test and $25,000 minimum equity, which intraday-margin rules are replacing.
Payment for Order Flow (PFOF)
Payment for order flow (PFOF) is compensation a broker receives from a market maker or other venue for routing customer orders there for execution.
Portfolio Margin
Portfolio margin is a risk-based margin method that sets account requirements from modeled losses across price scenarios, with permitted offsets and minimum charges.
Price Improvement
Price improvement is a fill at a better price than the displayed quote benchmark at order receipt, below the offer for a buy or above the bid for a sell.
Price-Time Priority
Price-time priority is an order book rule that fills the best-priced resting orders first and, among orders at the same price, the one that arrived earliest.
Q
1 termR
2 termsRegulation NMS
Regulation NMS is the SEC rule framework for U.S. stock trading that governs market access, protected quotes, minimum pricing increments and consolidated market data.
Regulation SHO
Regulation SHO is the SEC rule set for short sales of equity securities, covering order marking, locates, fail-to-deliver close-outs and the Rule 201 price test.
S
12 termsSecurities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is the federal agency that oversees U.S. securities markets, public-company disclosure and regulated market participants.
Securities Information Processor (SIP)
A securities information processor (SIP) is the system that consolidates specified quotes, trades and status messages from U.S. equity venues into national market data.
Security
A security is a financial instrument recognized under the applicable securities laws, such as a stock, bond, fund share or listed equity option.
Short Interest
Short interest is the number of shares reported as open short positions in a security on a designated settlement date, collected by FINRA twice a month.
Short Selling
Short selling is a trade that opens a stock position by selling borrowed shares and commonly closes it by buying shares back to cover, profiting if the price falls.
Short Squeeze
A short squeeze is a feedback loop in which a rising price or scarce borrow pushes short sellers to buy shares, and their covering adds further upward pressure.
Short-Sale Restriction (SSR)
A short-sale restriction (SSR) is the Rule 201 test requiring non-exempt short sales above the national best bid once a covered stock falls 10% from its prior close.
Slippage
Slippage is the difference between an order decision or benchmark price and the average price actually received across its executions.
Spoofing
Spoofing is the prohibited practice of entering bids or offers with the intent to cancel them before execution, so the displayed interest is not genuine.
Spread
A spread is the difference between two related prices, rates, or yields, most often the gap between the bid and the ask quoted in a market.
Stop Order
A stop order is an order that becomes a market order once its stop price triggers, commonly used to exit a position or enter after a chosen price trades.
Stop-Limit Order
A stop-limit order is a conditional order that becomes a limit order when its stop price triggers, so it executes only at the limit price or better.
T
6 termsT+1 Settlement
T+1 settlement is the standard completion of a covered securities trade one business day after the trade date, when cash and securities are delivered.
Threshold Securities
A threshold security is an equity security on an SRO list after its aggregate fails to deliver meet Regulation SHO quantity tests for five consecutive settlement days.
Tick Size
Tick size is the minimum permitted price increment for quoting or entering orders in a security under the rules that govern its market and product.
Time and Sales
Time and sales is a chronological record of reported executions showing fields such as trade time, price, size, venue, and sale condition.
Trading Halt
A trading halt is a temporary suspension of trading in a security, a venue or the whole market because of news, volatility, regulatory concerns or operational problems.
Trailing Stop Order
A trailing stop order is a stop order whose trigger follows favorable price moves at a set dollar or percentage distance and activates when price reverses that far.