markets

Central clearing was extended after the financial crisis because it removes counterparty risk from the network. It does not remove it from the system: it concentrates it in a small number of institutions that are now indispensable. This lesson assesses what was gained, what was created, and how to read any infrastructure change for the risk it relocates.

Settlement is one instant of exchange, and getting it right means never letting the two legs come apart. This lesson covers delivery versus payment, where securities actually live and who is in the chain, why settlement fails are routine rather than scandalous, and what shortening the cycle costs.

A CCP takes the other side of every trade, which means one member's failure becomes its problem and therefore everyone's. This lesson covers how it survives that: the margin it collects, the ordered stack of resources it burns through in a default, and the deliberate design choice of putting its own capital ahead of the mutualised fund.

A trade is agreed in microseconds and completed days later. In between, both sides hold a promise rather than an asset, and either could fail. This lesson builds the trade lifecycle, explains why the gap exists at all, and introduces the legal manoeuvre that lets a stranger's creditworthiness stop being your problem.

A schedule says how much to trade and when. It says nothing about how each slice is sent, and that choice determines much of the realised cost. This lesson covers the standard algorithm families and what each one's benchmark actually rewards, then the placement decisions underneath: passive against aggressive, displayed against hidden, and which venue.

The cost of a trade is not the commission, and it is not the spread. It is the gap between the return the decision would have produced on paper and the return the account actually got. This lesson builds that measure, decomposes it into four sources, and shows why the largest component is often the trade nobody made.

Value at Risk compresses a whole loss distribution into one number, which is why it was adopted everywhere and why it misleads. This lesson builds it three ways, shows the arithmetic case where it says diversification increased risk, and covers the coherence axioms that explain the failure and the measure regulators moved to instead.

An option's value at expiry is trivial arithmetic. Its value before expiry is a hard modelling problem. Between those two facts sits put-call parity, which pins calls and puts to each other using no model at all, only the impossibility of free money. This lesson builds the contracts and that relation.

The order book is not a law of nature. Someone chose the tick size, the priority rule, and whether trading runs continuously or in batches, and each choice determines who profits. This lesson reads the latency arms race as a predictable consequence of one design decision rather than a moral failure, and covers what changes when the design does.

Nobody announces what an asset is worth, yet prices move toward it. The mechanism is order flow: trading is how private information becomes public price. This lesson builds Kyle's model of that process, separates the part of your impact that is permanent from the part that reverts, and explains why size costs more than depth alone predicts.

Competition should compress the bid-ask spread to nothing, and it does not. The reason is not fees or greed: a spread survives even when trading is free and the quoting participant expects zero profit. This lesson builds the adverse selection argument, then shows how to measure which part of a spread is information and which part is rent.

A market price is not published by anyone. It is the residue of a queue of resting orders and the orders that consume them. This lesson builds the limit order book and its matching rules, shows what a fill actually costs, and takes apart the assumption that an instrument has one price at all.