Source-aware field guide · 20 answers
Trading Foundations
Plain-language explanations of the markets, participants, contracts and position states that appear throughout trading workflows.
Published · reviewed for scope, source visibility and answer ownership
How to use this guide
Plain-language explanations of the markets, participants, contracts and position states that appear throughout trading workflows. The guide is written for traders, support teams and brokerage product staff. The scope covers general market vocabulary and the operational meaning of a position or contract; it does not recommend an instrument, strategy or provider.
Use every answer to resolve one operational question: Which market object, party, price or obligation does the term describe, and what record proves that interpretation? Market conventions vary by venue and product. Contract specifications, client agreements and current venue rules take priority over a general explanation.
The supporting set is Investor.gov — Investing basics and glossary; CFTC — Foreign currency trading advisory; FINRA — Types of orders. These links provide standards, regulator material or official product documentation for the subject; they do not imply endorsement, worldwide applicability or a verified feature in a particular deployment. Check the current source, contract, configuration and qualified local advice before a production, trading or compliance decision.
What Is a Financial Market?
A financial market is an arrangement in which participants exchange financial instruments, claims or risk under defined trading and settlement rules.
- Use it to
- Identify the venue, instrument, participants and settlement path before describing a market.
- Check the boundary
- A market name alone does not reveal its legal structure, access rules or counterparty chain.
What Is a Broker?
A broker is an intermediary that receives or facilitates client transactions under the services, permissions and execution arrangements described in its agreement.
- Use it to
- Separate client-facing intermediation from software, custody, dealing and settlement roles.
- Check the boundary
- The word broker is used differently across products and jurisdictions, so the named legal entity and activity matter.
What Is a Dealer?
A dealer transacts as principal for its own account, quoting or accepting prices under the rules and disclosures that govern the relationship.
- Use it to
- Distinguish principal activity from agency routing when mapping an execution workflow.
- Check the boundary
- Dealer status cannot be inferred from a brand label or one trade outcome.
What Is an Exchange?
An exchange is an organized venue with admission, trading and market-rule processes for listed instruments and participating members.
- Use it to
- Verify where an instrument is admitted and which venue rules govern an order.
- Check the boundary
- Access through a broker does not make the broker itself the exchange.
What Is an OTC Market?
An over-the-counter market is a decentralized arrangement in which counterparties trade under bilateral or network rules instead of one central order book.
- Use it to
- Map the quoting party, counterparty, price source and settlement obligations.
- Check the boundary
- OTC does not mean unregulated, risk-free or identical across instruments.
What Is a Long Position?
A long position gives an account positive economic exposure to an instrument, so gains and losses generally move with the instrument under its contract terms.
- Use it to
- Record quantity, entry basis, valuation currency and costs when explaining the exposure.
- Check the boundary
- Positive exposure does not guarantee profit and derivatives can alter the payoff.
What Is a Short Position?
A short position gives an account negative economic exposure to an instrument, so the position generally benefits from a decline and loses from a rise under its terms.
- Use it to
- Identify borrowing, margin, financing and close-out conditions before evaluating the trade.
- Check the boundary
- Losses, recalls and financing can behave differently across cash and derivative products.
What Is a Bull Market?
A bull market is a descriptive label for a sustained period of broadly rising prices, not a universal threshold or a timing signal.
- Use it to
- State the index, market, start date and rule used when classifying the period.
- Check the boundary
- Different assets and time windows can produce conflicting bull-market labels.
What Is a Bear Market?
A bear market is a descriptive label for a sustained period of broadly falling prices, often defined by a chosen threshold and reference peak.
- Use it to
- Document the benchmark, peak, measurement window and classification rule.
- Check the boundary
- The label does not establish that every instrument is falling or that a reversal is imminent.
What Is Market Volatility?
Volatility describes the magnitude and pattern of price changes over a stated period, using an observed or model-based measure.
- Use it to
- Compare movement only after fixing the instrument, interval, sample and calculation method.
- Check the boundary
- High volatility is not the same as a directional forecast or a complete risk estimate.
What Is Market Liquidity?
Market liquidity is the ability to transact a stated quantity with acceptable price impact, speed and execution uncertainty under current conditions.
- Use it to
- Assess executable size, spread, depth, fill behavior and recovery rather than one headline number.
- Check the boundary
- Displayed liquidity can disappear and a liquid small order may not imply capacity for a large one.
What Is a Trading Session?
A trading session is a defined period in which a venue, platform or market convention accepts specified activity and applies its opening, closing or rollover rules.
- Use it to
- Align timestamps, holidays and order handling with the applicable session calendar.
- Check the boundary
- Popular regional labels do not replace the actual venue and provider schedule.
What Is a Currency Pair?
A currency pair quotes the value of one currency in units of another, with a defined base, quote, precision and contract convention.
- Use it to
- Map price movement, quantity and account-currency conversion to the pair specification.
- Check the boundary
- Symbol names and contract sizes can differ between platforms even when the currencies match.
What Is a Base Currency?
The base currency is the first currency in a standard currency-pair quotation and the unit whose value is expressed by the quote currency.
- Use it to
- Identify whether quantity, profit and account reporting use the base, quote or another currency.
- Check the boundary
- The account base currency is a separate setting and should not be confused with the pair base.
What Is a Quote Currency?
The quote currency is the second currency in a currency pair and states how many of its units correspond to one unit of the base currency.
- Use it to
- Trace price changes and profit conversion from the quote currency into the account currency.
- Check the boundary
- Inverting a rate changes both the number and the interpretation.
What Is the Spot Market?
A spot market trades an asset or currency for settlement under the market's standard near-term convention, although retail products may only reference spot prices.
- Use it to
- Separate the price reference from the legal contract and actual settlement obligation.
- Check the boundary
- The word spot does not prove immediate delivery or ownership of the underlying asset.
What Is a Forward Contract?
A forward is a customized agreement between counterparties to transact an asset at a future date on agreed terms.
- Use it to
- Record notional, rate, maturity, settlement method, collateral and counterparty.
- Check the boundary
- A forward's bilateral terms and credit exposure differ from a standardized exchange-traded future.
What Is a Futures Contract?
A futures contract is a standardized exchange-traded obligation with defined contract terms, margin processes and a delivery or cash-settlement method.
- Use it to
- Read the exchange specification before translating price movement into exposure or settlement.
- Check the boundary
- The quoted price, tick value and expiry process vary across contracts.
What Is a CFD?
A contract for difference is a derivative in which parties exchange the change in value of a referenced market under the provider's contract terms without transferring the underlying asset.
- Use it to
- Verify the counterparty, reference price, financing, margin, corporate-action and close-out rules.
- Check the boundary
- Owning a CFD is not the same as owning the referenced share, commodity or currency.
What Is a Rollover Date?
A rollover date is the operational point at which an open position, contract or value date is carried into a new period under stated financing or settlement rules.
- Use it to
- Match the provider timezone, holiday calendar, instrument rule and applied charge to the account record.
- Check the boundary
- Rollover timing and multi-day adjustments are not identical across providers or instruments.
Primary and official references
These sources establish definitions, standards or official product behavior used across this guide. Follow the exact source and check its current version before a live implementation.