Market microstructure
Market microstructure refers to the rules and processes that govern how trading takes place in financial markets, like the stock exchange.
Imagine a big room where lots of people are buying and selling toys. Each person has a specific toy they want to buy or sell and they shout out their prices and quantities. The market microstructure is what governs how these people find each other and make trades.
In real financial markets, instead of shouting, people use computers to place orders. These orders are sent to a central location (like a stock exchange) where they are matched with other orders at the same or similar prices. These trades can happen very quickly (in just a fraction of a second!) thanks to technology.
Market microstructure also includes things like bid-ask spreads, which is the difference between the price someone is willing to buy a stock for (the bid) and the price someone is willing to sell it for (the ask). This spread is where market makers (people who facilitate trading) make their money.
Overall, market microstructure is about the rules and processes that enable people to buy and sell things in a financial market.
Imagine a big room where lots of people are buying and selling toys. Each person has a specific toy they want to buy or sell and they shout out their prices and quantities. The market microstructure is what governs how these people find each other and make trades.
In real financial markets, instead of shouting, people use computers to place orders. These orders are sent to a central location (like a stock exchange) where they are matched with other orders at the same or similar prices. These trades can happen very quickly (in just a fraction of a second!) thanks to technology.
Market microstructure also includes things like bid-ask spreads, which is the difference between the price someone is willing to buy a stock for (the bid) and the price someone is willing to sell it for (the ask). This spread is where market makers (people who facilitate trading) make their money.
Overall, market microstructure is about the rules and processes that enable people to buy and sell things in a financial market.