Chapter 2 - Financial Markets and Instruments

Abstract

We start with the definitions and descriptions of different entities in the financial markets and how they interact with each other. We introduce exchanges, electronic communication networks (ECNs), broker-dealers, market-makers, regulators, traders, and funds to better understand the financial ecosystem given that the legal framework, regulatory and compliance issues are beyond the scope of this book. In a separate section, we delve into the details of various types of financial instruments, i.e., stocks, options, futures, exchange traded funds (ETFs), currency pairs, and fixed income securities. Our goal in this chapter is not to provide the exhaustive details of these entities, instruments, and their relationships with each other. We rather aim to equip engineers with a good understanding of these concepts to navigate further in the area they choose to focus on through the references provided. We note that our primary focus is the financial markets and products offered in the United States. However, with only slight nuances, the concepts and definitions are globally applicable to any local financial market of interest.