In this chapter, we are going to look at the major markets that we will be trading weekly options on, and compare their similarities and differences. Before you can attempt to trade any market you must have a thorough understanding of how it functions. All markets are not the same, and it is a mistake to try and trade them if you are not familiar with the way that they trade.
Twenty-first century financial markets no longer rely on face-to-face barter, as they had for centuries; they are conducted through electronic transfers. The markets we will be concerned with are highly sophisticated, and will always result in the exchange of funds. Almost all thriving markets rely on a form of auction. The party who wants to buy something will place a bid. The counterparty will place an offer. If no one is willing to yield, the market does not trade. When a trade does occur, it is called price discovery. This is one of the most important terms you will learn in trading. It is the market mechanism that allows the transfer of value.
Most investors refer to the equity markets as stock markets. Equity markets are the most famous investing venues, but they are relatively small when compared to debt and currency markets. This chapter we will begin by looking at the US stock markets.
There are many ways to get equity in a company, and one is to buy stock. However, ...