Glossary

add liquidity   The act of placing a nonmarketable order, which is any limit buy order with a limit price less than the best offer, or any limit sell order with a limit price greater than the best bid.

AMEX—American Stock Exchange   Now called NYSE Amex Equities after its acquisition by the NYSE Euronext parent company. It was originally known as the New York Curb Exchange prior to 1953.

Anvil   A popular trading platform used by many proprietary trading firms. It has been acquired by Lightspeed, which has since focused on its direct access retail brokerage operations.

API—application programming interface   An API allows programmers to access the interface of a piece of software using other software. APIs typically allow the same functions as the regular user interface except the software-based user obviously does not require the visual aspects of the interface. Instead, the functions of the software are offered for access programmatically. For example, a programming savvy trader might design a C++ or Visual Basic-based application that interfaces with the API of Sterling Trader Pro (a trading platform that can also be used to trade manually through its normal graphical user interface).

arbitrage   The act of simultaneously buying and selling instruments, typically for a risk-free profit. True arbitrage involves doing so with instruments with prices derived from the market value of the same or closely related assets, which minimizes any real market risk, though many strategies have stretched the definition of arbitrage, as in statistical arbitrage or stat arb, which takes advantage of statistically likely events but is not truly risk-free.

Arca   The NYSE Arca ECN system, formerly known as Archipelago. Associations with the letter P are due to its history as the Pacific Stock Exchange prior to its acquisition by the NYSE Group.

ATS—alternative trading system   An ATS operates as an order matching system that does not typically need to be regulated as an exchange, and often provides access to dark liquidity but in some cases includes access to public displayed liquidity as well. Some ATSs are liquidity aggregation platforms connected to networks of liquidity, typically at least including dark pools even if not exclusively.

auction imbalances   Auction imbalances are numbers published by the major exchanges such as the NYSE Arca and NASDAQ ECN (formerly Island) prior to the open of the U.S. equity markets at 9:30 A.M. Eastern (New York), and again prior to the close at 4:00 P.M. Eastern. The exact time of the release has historically varied, but this generally comes with a cutoff time in which orders that will participate in either the opening auction or closing auction, respectively, would no longerbe accepted by the system.

BATS   BATS Trading is now a registered exchange in the U.S. equity markets but was originally one of the independent ECN systems for years prior to gaining exchange status. BATS was originally aggressively marketed to active day traders to compete with the NASDAQ ECN (originally Island ECN) and Archipelago (now NYSE Arca).

CBOE   Chicago Board Options Exchange, also the operator of the CBSX (CBOE Stock Exchange), which is physically run from computer systems at the Equinix NY4 data center in Secaucus, New Jersey.

charting   A popular method of visually representing historical prices on any financial market, such as a stock or index, often used for technical analysis. Time is typically represented on the x-axis while price is represented on the y-axis in the form of a graph. Popular styles include Japanese Candlesticks, Open, High, Low, Close (OHLC) bars, as well as types that represent less information, such as line charts. Tick charts that show the price change tick-by-tick may also be available on some trading platforms.

closing auction   The auction held on specific market centers in the U.S. equity markets with a cross price at the close of the market at 4:00 P.M. Eastern. Orders for the closing auctions (marked with a “CLO” time in force) must typically be entered before a cutoff time prior to the actual close in order to participate in the closing auction. The cutoff time varies depending on the destination of the order.

cross price   A single price at which the market is trading rather than a best bid and best offer. The only times when a single cross price is an intended function of the market is during the opening auctions and closing auctions on the U.S. equity markets.

dark liquidity   Nonmarketable orders that exist at a route or destination that does not display these orders to the public (i.e., dark pool systems).

dark pool   Common name for a category of dark liquidity venues designed to allow large market participants such as major institutions and hedge funds to transact large amounts of shares with minimal market impact. Most are electronic algorithmic routes that process and match orders according to a specific strategy designed to attract more volume from the large market participants.

DAS Trader   A direct access trading platform by DAS Inc. used by many non-bank proprietary trading firms that trade on the U.S. equity markets.

DDE—dynamic data exchange   In the context of semi-automated trading, a DDE offered by a trading platform is often used to communicate with the VBA (Visual Basic for Applications, a Microsoft Excel specific programming language closely related to Visual Basic) code in an Excel spreadsheet.

direct access   A platform or brokerage that allows a trader to directly send orders to the ECN systems, NYSE floor routes, and dark pool algorithmic routes is generally considered to be a direct access platform or brokerage. The extent that such a piece of software, or such a company, allows access to the U.S. equity markets can vary, as many may not be connected to all available varieties of destinations on the market.

Direct Edge   Operator of a dual electronic exchange system located at the Equinix NY4 data center in Secaucus, New Jersey. The dual exchange platforms consist of EDGA and EDGX.

ECN—electronic communications network   In the context of the securities industry, electronic order matching systems that typically operate on a price-time priority basis, though there are exceptions (NASDAQ OMX PSX, formerly Philadelphia Stock Exchange, operates on a price-size priority basis).

ECN rebate   A rebate paid by an ECN or electronic exchange for executing an order of a specific type. Traditionally, rebates were paid for adding liquidity while fees were charged for removing liquidity. Today, some platforms either reverse the traditional pricing model or offer other benefits.

EDGA   Pronounced Edge A. One of Direct Edge's dual exchange platforms, originally operated as an ECN prior to achieving exchange status. A deep discount destination for U.S. equities.

EDGX   Pronounced Edge X. One of Direct Edge's dual exchange platforms, originally operated as an ECN prior to achieving exchange status. A competitor to the mainstay ECN systems, NASDAQ (former Island), and NYSE Arca.

FIX protocol   Financial Information Exchange protocol. A standardized method of representing financial information over an electronic network. It's not universally used even in the direct access market, but is often the inter platform standard.

Forex—Foreign Exchange   Common abbreviation of Foreign Exchange, specifically referring to the interbank foreign currency market, an over-the-counter market for international currencies.

futures   Refers to futures contracts. Contracts that are traded, typically electronically but also by open outcry, based on a projected value of a financial asset at a future settlement date. Typically, futures contracts are correlated with the underlying asset's spot price, but generally discounted for time value to a reasonable extent.

HFT—high-frequency trading   A buzzword in the finance industry specifically referring to the automated trading systems that trade on nanosecond time frames and are typically co-located at data centers like Equinix NY4 where many of the electronic exchanges reside. Also collectively functions as a convenient excuse for struggling manual traders to point fingers at in order to avoid spending actual time and effort in development as a trader.

inverted maker-taker   An inverse pricing model offered by some ECN systems at times, in which the liquidity remover is paid a rebate and the liquidity provider is charged a fee (inverse of the traditional pricing model in which the opposite is true).

Knight Capital Group   Operator of a number of algorithmic dark pool routes and an instrumental company in the history of the Direct Edge dual exchange ECN platforms.

Laser   A trading software platform originally created for Genesis Securities, now offered by many proprietary trading firms and a few direct access brokerages.

Level 2 quotes   A display of market depth typically showing the number of shares posted on each of the displayed ECN platforms and electronic exchanges on each side: the national best bid and the national best offer. Together with the Time & Sales, it forms an integral part of basic tape reading techniques.

Lightspeed   A trading platform offered by a few proprietary trading firms. Lightspeed Trading, the creator of the software, has in recent years operated primarily as a retail direct access brokerage and has reduced its business among proprietary trading firms. Its platform, however, remains a noteworthy piece of software in the proprietary trading industry.

limit order   An order with a specified price limit at which it may be executed. Contrary to misunderstandings, limit orders are not necessarily non-marketable liquidity-adding orders. A limit buy order with the limit price set at the current best offer or higher will immediately execute and remove liquidity; likewise, a limit sell order with the limit price set at the current bid or lower will also immediately execute and remove liquidity. If a limit buy order is sent with a limit price lower than the current best offer, or if a limit sell order is sent with a limit price higher than the current best bid, then it will be non-marketable at the time the order was sent and will add liquidity.

liquidity provider   A party who adds liquidity to the market by sending an order that is non marketable at the time the order is sent.

long   A position in which a trader buys first in order to sell later at a profit or a loss. Opposite of a short, in which a trader first borrows to sell in order to buy to cover later for a profit or a loss. Effectively a bet that the price will rise.

maker-taker   A common pricing model of the mainstay ECN systems in which the liquidity remover is charged a fee while the liquidity provider is paid a rebate.

Millennium—NYFix Millennium ATS   One of the popular algorithmic routes used to route orders to visible routes as well as dark liquidity venues.

NASDAQ   Common name of the main NASDAQ ECN, formerly the Island ECN system that originated the maker-taker ECN price model.

NASDAQ OMX BX   New brand name of the Boston Exchange after its acquisition by the NASDAQ OMX Group parent company. Shortened as NQBX, it once offered an inverse maker-taker model to compete with CBSX and EDGA.

NASDAQ OMX PSX   New brand name of the Philadelphia Stock Exchange after its acquisition by the NASDAQ OMX Group parent company. Shortened as NQPX, it offers one of the only ECN systems on the market that uses price-size priority rather than price-time priority and creates a new dynamic for tape reading.

NYSE—New York Stock Exchange   One of the world's only remaining exchanges that is not entirely electronic. Floor brokers often fill trades using manual handheld devices, in some cases in combination with algorithmic order matching systems. NYSE floor broker routes are available on many direct access trading platforms and will vary depending on the proprietary trading firm or direct access brokerage providing the connections.

Omni Pro   A trading platform by Nexa Tech used by many proprietary trading firms.

opening auction   The auction held on specific market centers in the U.S. equity markets with a cross price at the market open at 9:30 A.M. Eastern. Orders for the opening auctions (marked with “OPG” time in force) must typically be entered before a cutoff time prior to the actual open in order to participate in the opening auction. The cutoff time varies depending on the destination of the order.

pair trading   A category of long-short equity trading strategies that trade with a long position in one stock simultaneously with a short position in another stock. The two stocks or other instruments are typically historically correlated and/or are companies in the same sector.

prop firm   Common short form of proprietary trading firm, a company whose traders participate in the market using the company's capital.

Prosper Pro   An in-house trading platform developed and used only by Swift Trade Securities, a Canadian proprietary trading firm that traded primarily on the U.S. equity markets.

rebate trading   A style of trading that aims to attain rebates from ECN systems as its primary source of profits.

Redi Plus   A direct access trading platform by Goldman Sachs, used by a few of the largest proprietary trading firms in the United States.

remove liquidity   An order that is immediately marketable. For example, a market buy or sell order, or a limit buy order with a limit price equal to or greater than the best offer or a limit sell order with a limit price equal to or less than the best bid.

scalping   A category of extremely short-term trading strategies that typically hold each trade for anywhere from one second to two minutes. Generally, these are manual strategies that do not encompass the HFT category.

short sell   A position in which a trader borrows to sell first in order to buy to cover later at a profit or a loss. Opposite of a long sell, in which a trader first buys in order to sell later for a profit or a loss. Effectively a bet that price will fall.

stat arb—statistical arbitrage   A common term for a category of strategies that includes pair trading. These strategies are not pure arbitrage in the traditional sense, but rather are reduced-risk hedged trading methods that trade based on a historical statistical basis. Despite the dangers of stat arb strategies around the times of black swan events, the category remains a popularly practiced method of trading at proprietary trading firms as well as many long-short equity hedge funds.

Sterling Trader Pro   A broker-neutral direct access trading platform by Sterling Trader, Inc., offered by many proprietary trading firms as well as direct access brokerages. One of the most popular platforms used by non-bank proprietary trading firms.

Swift Trade Securities   A Canadian proprietary trading firm that traded primarily in U.S. equity markets.

tape reading   A category of techniques originated long before the existence of electronic markets but adapted into today's markets and used by many traders who are or began as proprietary traders.

technical analysis   A collection of methods commonly practiced by retail traders using charts in combination with mathematically derived indicators calculated from historical data.

Time & Sales   A common feature of direct access trading software that shows the feed from the consolidated tape that reports all trades that have transacted on a listed or NASDAQ OTC stock. Together with Level 2 Quotes, it forms an integral part of tape reading techniques.

trading platform   The software used by a trader in order to view live market data and current positions, and place orders. Many platforms also offer other functions such as news, the ability to trade automated systems through a DDE or API interface, and an ability to set alerts.

VBA—Visual Basic for Applications   A Microsoft Excel programming language used for scripting in Excel spreadsheets. Commonly used by traders in semi-automated systems for functions such as sending large basket orders to a trading platform from an Excel spreadsheet.