1.2 How US Stock Prices Form: Order Books & Exchanges
From the order book to the consolidated quote: how one stock trades across many venues, and when the US session falls in India.
About this lecture
The price on your chart, the price you can buy at, and the price you can sell at are not necessarily the same. So how does a US stock price actually form?
Pratham starts with the order book, then follows price formation across exchanges, auctions and trading sessions.
You'll learn about:
- Bid, ask, spread and the last traded price
- How the same stock trades across multiple exchanges
- The NBBO and how quotes are consolidated
- Dark pools, wholesalers and different trading venues
- Opening and closing auctions, trading halts and price bands
- US market hours in IST and the daylight-saving shift
- The 11 market sectors and their exposure to growth, interest rates and currencies
This lecture connects the numbers on your screen to the structure behind them, preparing you to understand how economic news reaches individual stocks.
Educational content only. Not investment advice.
MochaLearn is a free A to Z course on understanding and trading US stocks and commodities, built for Indian traders.
Key takeaways
- The chart's price, the price you can buy at and the price you can sell at are three different numbers: the last trade, the ask and the bid.
- One stock trades on many exchanges and in dark pools and wholesalers; the NBBO consolidates every venue's best quote into one.
- Opening and closing auctions, halts and price bands shape the edges of the session; the US session lands in the Indian evening and shifts by an hour with daylight saving.
- The eleven market sectors differ in how they respond to growth, interest rates and currencies.
Terms in this lecture
- NYSEThe NYSE is the New York Stock Exchange, started in 1792 when twenty four brokers agreed to trade only with each…
- S&P 500The S&P 500 is about five hundred of the largest American companies, weighted by market value, and the number money is…
- 10-year Treasury yieldThe ten-year Treasury yield is the benchmark long rate that mortgages, company debt and stock valuations are priced…
- 24/7 trading24/7 trading means a contract keeps trading through nights, weekends and holidays while the underlying exchange is…
- BetaBeta measures how much a stock has moved relative to the market: 1.5 means it has historically moved 1.5% for each 1%…
- Book valueBook value is total assets minus total liabilities on the balance sheet, what shareholders own on paper. For a bank it…
- Circuit breaker (US)A US circuit breaker halts trading. Market-wide, an S&P 500 fall of 7% or 13% stops all stocks for fifteen minutes and…
- Closing auction (official close)The closing auction is the single matched trade at 1:30 AM IST, 2:30 AM in winter, that sets each US stock's official…
- CME GroupCME Group is the Chicago exchange where futures on US stock indices, interest rates, gold, oil and copper trade…
- Cyclical vs defensive stocksCyclical stocks earn more when the economy grows and less when it shrinks: discretionary, industrials, materials…
- Dark poolA dark pool is a private trading venue where orders stay hidden until they fill, so a fund can move a large block…
- Designated market makerA designated market maker is the one firm the NYSE assigns to each listed stock to keep trading orderly and to run its…
- Direct listing / SPACA direct listing puts existing shares on an exchange with no new shares and no underwriter, so the opening auction…
- Dollar index (DXY)The dollar index, DXY, measures the dollar against six major currencies, with the euro about 58% of it. A stronger…
- Earnings callThe earnings call is the conference call where management discusses results and takes analyst questions, usually…
- Earnings season / earnings reportEarnings season is the weeks after each quarter ends when most US companies report, starting with the big banks around…
- Economic calendarAn economic calendar lists every scheduled release of the week with its time and consensus forecast. Set one to IST…
- Futures contractA futures contract is an exchange-traded agreement to buy or sell at a set price on a set date, settled daily against…
- Gap up and gap downA gap is a price opening far from where it last traded, with nothing in between. US stocks gap at 7:00 PM IST because…
- GICS sectorsGICS sectors are the eleven sectors S&P and MSCI use to classify every company: energy, materials, industrials…