Trading

Trading is buying and selling financial instruments. Prices reflect the orders participants are willing to trade at.

The pages

• Markets and Orders: bids, asks, order books and execution.

• Options: calls, puts, strikes and expiry.

• Futures: contract terms, margin and settlement.

• Pricing and Greeks: volatility and option sensitivities.

• Market Making: quoting prices and managing inventory.

• Options Strategies: spreads, covered calls and straddles.

• Risk and Position Sizing: exposure, margin, liquidity and drawdowns.

• Probability and Expectation: weighted outcomes and uncertainty.

• Backtesting: historical data, execution costs and evaluation.

• Market Simulator: an order book, matching rules and delayed messages.

Key terms

A position is an exposure held in an instrument. A long position generally benefits when its price rises; a short position generally benefits when it falls.

A derivative is a contract whose value depends on an underlying asset or reference measure. Options and futures are derivatives.

Hedging uses another position to reduce a particular exposure. It can leave other risks, including a mismatch between the hedge and the position.

Reading order

Start with markets and orders, then compare options with futures. Pricing and Greeks explains how option exposure changes. Market making brings valuation, execution and inventory together.

The simulator defines its own exchange rules. The backtesting and probability pages provide simple model designs with explicit assumptions. Real instruments and venues have their own specifications.

Profit and loss

Realised profit and loss comes from positions already closed or cash flows already settled. Unrealised profit and loss marks a remaining position against a chosen price. Different marking choices can give different values for an illiquid instrument.

Separate trading gains from fees, funding and hedge costs. A rule that predicts direction can still lose after execution costs or because its position size creates too much exposure.