Glossary: M01 — Market Organization and Structure
| Term | Definition |
|---|---|
| Ask (Offer) Price | The lowest price a seller is willing to accept for a security |
| Bid Price | The highest price a buyer is willing to pay for a security |
| Bid-Ask Spread | The difference between the ask and bid prices; represents a transaction cost |
| Block Order | A large order that may be difficult to execute without impacting the market price |
| Broker | An agent who executes trades on behalf of clients, earning a commission |
| Call Money Rate | The interest rate brokers pay on margin loans, often passed to clients with a markup |
| Clearing | The process of confirming and matching trade details between counterparties |
| Crossing Network | A trading system that matches buy and sell orders without displaying them publicly |
| Dark Pool | A private exchange or forum for trading securities not accessible to the general public |
| Dealer | A principal who trades on their own account, profiting from the bid-ask spread |
| Dealer Market | A market where dealers quote bid and ask prices and trade from their own inventory |
| Exchange | An organized marketplace where securities are traded under established rules |
| Execution Instructions | Instructions specifying how an order should be filled (e.g., market, limit) |
| Financial Intermediary | An institution that facilitates transactions between parties (banks, brokers, exchanges) |
| Good-till-Cancelled (GTC) | An order that remains active until executed or explicitly cancelled |
| Initial Margin | The minimum equity a buyer must deposit when purchasing securities on margin |
| Initial Public Offering (IPO) | The first public sale of a company’s shares |
| Leverage | Using borrowed funds to amplify returns (and losses) |
| Limit Order | An order to buy or sell at a specified price or better |
| Long Position | Owning a security with the expectation that its price will rise |
| Maintenance Margin | The minimum equity level that must be maintained in a margin account |
| Margin Call | A demand to deposit additional funds when account equity falls below maintenance margin |
| Market Maker | A dealer who continuously quotes bid and ask prices to provide liquidity |
| Market Order | An order to buy or sell immediately at the best available price |
| Order-Driven Market | A market where buy and sell orders are matched by rules (price-time priority) |
| Over-the-Counter (OTC) | A decentralized market where securities trade directly between parties |
| Primary Market | The market where new securities are issued and sold to investors for the first time |
| Quote-Driven Market | A market where dealers provide liquidity by quoting prices |
| Secondary Market | The market where previously issued securities are traded among investors |
| Settlement | The actual exchange of securities and funds after a trade is executed |
| Short Position | Selling a borrowed security with the expectation of buying it back at a lower price |
| Short Selling | Selling securities one does not own, borrowing them with the obligation to return |
| Stop Order (Stop-Loss) | An order that becomes a market order when a specified price is reached |
| Validity Instructions | Instructions specifying how long an order remains active (day, GTC, etc.) |
| Well-Functioning Market | A market that is operationally efficient, informationally efficient, and allocatively efficient |
Related: M01 Module Page | Equity Formulas