Introduction to Markets, Trading and Risk
Beginner8 sections · 35 lessons · 70 questionsLog in to track progress
Most explanations of trading start with what a trader believes about the market. This one starts with what a market maker owes it: a price on both sides, continuously, to anyone who asks. That obligation is where the job's actual problems come from, and almost none of them are about having a view.
It opens on what a proprietary trading firm is and how one makes money, then builds the machinery: how an order book works and what a large order does to it, why the mid is a poor estimate of fair value and what to use instead, how a quote is centred and how wide it should be, and what to do with the inventory you did not want. The back half is P&L, risk limits, execution and the simulated markets firms use to test all of it.
Nothing here assumes finance experience or a maths background beyond arithmetic. It is the course to start with if the phrase "make me a market" has ever been put to you and you are not sure what a good answer looks like.
What Is a Proprietary Trading Firm?Firms that trade their own capital, why that single fact shapes everything about how they hire and operate.Roles: Market Maker vs. Arbitrageur vs. SpeculatorThree ways to make money in markets, distinguished by what each one is actually being paid to bear.How Prop Firms Make MoneyThe revenue model in numbers: tiny edges, enormous repetition, and the risk controls that keep the compounding alive.The Daily Life of a Trader at Firms like IMCWhat the day actually looks like, from the pre-open meeting to the post-close review, and what is being evaluated throughout.
How an Order Book WorksThe central data structure of modern markets, read through a worked example of what a large order actually does to it.Bid-Ask Spread, Depth, and LiquidityWhat sets the width of a spread, why depth matters as much as width, and the three dimensions of liquidity.Price-Time Priority and Order MatchingHow the matching engine decides who trades first, and why queue position is an asset worth protecting.Exchanges, Venues, and Trade RoutingFragmented markets, why the same asset trades in many places at once, and what a smart order router is optimising.Latency and Market Access InfrastructureWhy microseconds are worth money, what the latency budget is spent on, and why speed is a defensive necessity as much as an offensive edge.
What Is Market Making, and Why Does It Matter?Selling immediacy for a spread, and the two risks that make it a genuine skill rather than a toll booth.How Market Makers Choose QuotesFour inputs turn a fair value estimate into a live two-sided quote, and each one has a clear direction of effect.Spread-Widening in Uncertainty and VolatilityWhy spreads widen exactly when liquidity is most wanted, and the two distinct risks that drive it.Inventory Risk and Mean ReversionManaging the position you never wanted, and the dangerous assumption that prices come back.Hit Ratio vs. Spread: The Core TradeoffTighter quotes trade more at less profit each; the optimum is where the product peaks, and it moves constantly.Making Markets in OptionsThe business most graduate traders are actually hired into, and the four ways it is harder than quoting a single price.
What Is Fair Value?Your best estimate of what something is worth right now, why the mid is a poor default, and how the estimate is built.Price Discovery and Information in MarketsHow dispersed private information becomes a public price, and the paradox at the centre of efficient markets.Using Order Flow to Estimate True PriceReading trades as evidence, and separating flow that carries information from flow that is only noise.Volatility and Confidence Intervals in PricingTurning uncertainty about fair value into a number, and turning that number into a spread.
Quoting Around Fair ValuePlacing a two-sided market, and the three ways a quote goes wrong.Passive vs. Aggressive Order PlacementEarning the spread versus paying it, and when paying it is clearly the right decision.Skewing Quotes to Manage RiskShifting both sides to attract the flow you want, the cheapest inventory tool available.Adapting to Flow: Dynamic QuotingPutting the four controls together into a strategy that responds to what the market is actually doing.
Realized vs. Mark-to-Market P<wo numbers that answer different questions, and why a market maker watches the one that has not happened yet.Inventory Valuation and ExposureMeasuring what you are actually exposed to, which is rarely just the size of your position.Capital Usage and Risk ConstraintsThe limits that keep a positive-expectation strategy alive long enough to pay off.Hedging Basics for Market MakersRemoving the risk you were not paid to take, while keeping the one you were.
Simulated Markets and Trading GamesWhy firms train and interview with games, and what the assessors are actually watching.How Traders Train: Market Making Games, Speed, and MathThe three skills firms drill, why arithmetic speed matters more than it seems, and how to practise each.Basic Execution Algorithms (TWAP, VWAP)How large orders get worked over time, and why a market maker needs to recognise algorithmic flow.Slippage, Latency Arbitrage, and Adverse SelectionThree ways execution costs more than the screen suggested, and the one that defines market making.
Auction Theory in Trading (Opening, Closing Auctions)How a single clearing price is found, and why the closing auction is the most important trade of the day.Statistical Edge and Signal-Based StrategiesPredicting short-horizon moves, what makes a signal real, and how signals fold into quoting.Role of Mental Math and Reaction SpeedThe specific calculations traders do in their heads, and the techniques worth automating before an interview.Intro to Coding and Automation in Prop TradingWhat traders actually build, which languages are used where, and how much coding a trading role really requires.
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