This part defines a handful of market structure terms that appear on nearly every page of this series. It is not a dictionary - just the concepts you will actually need, explained the way practitioners use them.

Orders

An order is an instruction to buy or sell. At minimum it specifies:

• the instrument (a ticker or trading pair),

• the side (buy/long, sell/short),

• the quantity,

• the order type, and

• a time-in-force.

The two foundational order types differ in what they guarantee. A limit order guarantees price but not execution: the limit price caps what a buyer will pay or floors what a seller will accept. The order waits in the order book if the market never reaches it. A market order guarantees execution but not price: it takes whatever the book offers.

Time-in-force controls how long an order lives:

• IOC (Immediate-or-Cancel): match instantly against whatever is available; cancel any remainder. IOCs are the workhorse of smart routers (Part 9).

• FOK (Fill-or-Kill): execute the full quantity immediately or cancel the entire order; partial fills are not allowed.

• GTC (Good-Til-Canceled): rest indefinitely until explicitly cancelled - the norm in crypto, where there is no session close.

• Day: rest until filled, cancelled, or the session ends.

Venues and the Order Book

Orders are sent to a trading venue - a system, physical or virtual, where buyers and sellers meet. That includes registered exchanges, ECNs, dark pools, and dealer platforms. A broker-dealer that crosses client orders internally is a venue too. The labels are partly regulatory: an ECN behaves much like an exchange in practice, while a dark pool is fundamentally different because it displays nothing pre-trade.

A venue’s resting limit orders form its order book. The buy side of the book is the bid; the sell side is the ask (or offer). A book might show, for example, a best bid of $42.60 for 800 units against a best ask of $42.63 for 150 units, with additional size stacked at progressively worse prices behind each - that stacked size is the book’s depth.

Quotes, Spreads, and Arbitrage

A quote is a published expression of willingness to trade - broadcast by a venue (its best bid and ask) or by an individual dealer. Firm quotes are executable as shown; indicative quotes are advertisements that must be confirmed before trading. Modern electronic equity and crypto markets run on firm quotes; indicative quoting is still prominent in dealer markets like parts of FX and fixed income.

The gap between the best bid and best ask is the bid-ask spread. If a dealer quotes USD/EUR at 0.9214 bid / 0.9217 ask, the spread is 0.0003 - the round-trip cost of buying and immediately selling. Spreads should never be negative: if one venue’s bid ever exceeds another venue’s ask (a crossed market), anyone can buy at the low ask and sell at the high bid for a riskless profit Assuming there are no other constraints (e.g. regulatory, cost of capital, venue risks), arbitrageurs erase the condition almost instantly.

Aggregating the best prices across every venue produces a consolidated quote - in US equities, the NBBO. Crucially, crypto has no consolidated tape: each exchange publishes only its own book, so building an accurate consolidated view is part of the execution problem itself (see Part 14).

How Venues Differ

Priority Rules

When several resting orders could match an incoming one, the venue’s priority rules pick the winner. Price always comes first - best price trades first. The tiebreakers vary:

• Price-time: first in, first filled. Simple, but it rewards raw speed and fuels the low-latency arms race.

• Price-size: bigger orders jump the queue. This encourages displaying size, though it also tempts traders to overstate quantity they don’t truly want.

• Price-broker-time: a broker’s own resting client orders match first against that broker’s incoming flow. This rewards brokers for putting order flow on the public book instead of internalizing it.

• Displayed before hidden: at any price level, visible size fills before hidden size.

Tick Size

The tick size is the minimum price increment (US stocks above $1 have a $0.01 min tick size). Tick sizes help enforce priority rules: with a one-cent tick, jumping ahead of a $20.00 bid costs a full cent. With an infinitesimally small tick, queue position could be bought for a meaninglessly small price improvement, and time priority would be worthless. Many crypto venues have extremely fine ticks, which is one reason queue-jumping behavior is more common there.

Lot Size

The lot size is the standard quantity increment. US equities distinguish round lots (100 shares) from odd lots, which historically received different regulatory and data treatment. Crypto venues instead specify a minimum order size and a quantity step per market.

Auctions

Besides continuous trading, many venues run auctions - typically at the open and close - that pool orders and clear them simultaneously at a single price where supply meets demand. Exchanges publish imbalance data and indicative clearing prices in the run-up, and restrict late order changes that don’t reduce the imbalance. Closing auctions concentrate enormous volume in equities. 24/7 Crypto markets have no natural auction points - a structural difference we revisit in Part 14.

Fee Models

Most venues charge per execution. Under maker-taker, the resting order that provides liquidity earns a rebate while the incoming order that removes it pays a fee; the venue keeps the difference (for example, charge 0.03%, rebate 0.02%, keep 0.01%). This subsidizes deep books. Some venues invert it - taker-maker - paying the aggressor instead. Inverted venues attract traders who want a shorter queue without improving price by a full tick. Crypto exchanges use tiered maker/taker schedules based on rolling volume, which materially changes optimal tactics for large accounts.

Lit Venues vs. Dark Pools

A lit venue displays its book (or at least its best quotes) to participants pre-trade. A dark pool displays nothing: orders rest invisibly and typically match at the midpoint of the lit market’s spread.

Dark pools were invented so institutions could cross large blocks without telegraphing their intentions. The modern reality is broader: most dark volume now flows through broker-operated pools open to many participant types, and the average dark execution is small. Dark liquidity is a meaningful slice of equity volume, and interacting with it safely is a core router skill we cover in Part 9.

With the vocabulary in place, Part 3 turns to economics: the costs, alpha, and risk that every execution decision trades off.