2026
- The two-day gap Trading is instant and settlement is not. Almost everything that goes wrong in a crisis lives in the space between those two facts.
- One book, fourteen venues Fragmentation gets blamed for a lot. Most of what it is accused of is really the cost of stitching separate books back together in real time.
- What a quote actually costs Every resting order is a free option written to the rest of the market. Understanding what that option costs explains most of what spreads do.
- The cost of being in a hurry Every cost of trading is a payment for speed. Slow down and most of them shrink — except the one that grows, which is why the problem has no clean solution.
- Was that a good fill? Judging an execution requires comparing it to something. Every available benchmark is flawed, and which flaw you choose determines what your traders optimise for.
- The feed Every market fact you have ever seen arrived through a product somebody sells. What that product includes, and how fast, is a business decision.
- Pulling the plug A circuit breaker stops trading precisely when people most want to trade. The case for doing so rests on a specific claim about what is going wrong.
- When someone fails A clearing house exists so that your counterparty's failure is not your problem. The mechanism that achieves this is a queue of other people's money, in a strict order.
- The rebalance Vast quantities of money are traded each month by rules written years earlier. The flows are mechanical, dated, and known to everyone — which is precisely the problem.
- Joining the index An index is a list. Because trillions of pounds track those lists mechanically, changing one creates buyers who must buy — and everybody knows in advance exactly who they are.
- Volatility is a price Implied volatility is quoted like a forecast and traded like an insurance premium. Confusing the two is the most common mistake in derivatives.
- The dealer's hedge An options dealer has no view. To stay flat they must buy and sell the underlying continuously, and the direction of that trading depends on which way their book leans.
- What a future actually is A futures contract is a promise about a date, standardised until it is fungible and margined until the promise is safe. Every strange thing about futures follows from those two choices.
- Cash against collateral The repo market is a pawnshop for financial assets, it is larger than almost anything else in finance, and the number that governs it is one nobody quotes.
- The borrow Selling something you do not own requires someone to lend it to you first. That lending market is small, opaque, and the reason short squeezes happen at all.
- Inventory When a market maker moves their quote, it is usually not a view about the market. It is a statement about what they are already holding.
- Markets without a book Most of the world's financial assets do not trade on an order book at all. They trade by asking someone for a price, and the difference explains almost everything about how bonds behave.
- What a broker actually does Your order rarely goes to an exchange. Between you and the market sits a firm making decisions on your behalf, and what it is allowed to do with your order is one of the most consequential rules in finance.
- Maker, taker, rebate Venues do not charge both sides of a trade the same way. Some pay one side to be there. The reason is a chicken-and-egg problem, and the consequences run through everything.
- Where a price comes from A price is not a measurement of value. It is the point at which the marginal buyer and the marginal seller ran out of disagreement, which is a much stranger thing.
- The smallest number The minimum price increment sounds like an accounting detail. It decides how deep the book is, how long the queue is, and how much it costs to trade.
- Who is on the other side Every trade needs two people who both think they are better off. A market only functions because its participants want genuinely different things.
- What a market is for A market is not a place where prices are announced. It is a machine for finding out what two strangers will agree to, and almost every feature of one follows from that.
- Deleveraging Every mechanism in this letter that is individually prudent becomes collectively destructive at the same moment. That coincidence is not bad luck. It is the design.
- Stress testing If history cannot tell you about events that have not happened, invent the events instead. That works, up to the point where you have to choose which ones.
- Three kinds of leverage Borrowing to invest is only one of them. The other two are harder to see, appear in no debt statistic, and behave the same way when they unwind.
- Correlation Diversification depends on things not moving together. Correlation is estimated from history, it is not a constant, and it moves in the direction that hurts.
- Value at risk A single number summarising a portfolio's risk. It answers a narrow question honestly and is routinely asked to answer a different one it cannot.
- The tape Every trade must be reported, and the resulting record is treated as the definitive account of what happened. Assembling it from many venues is harder, slower and more contested than anyone expects.
- Obliged to quote Some market makers have signed a contract requiring them to show prices. What that obligation is worth depends entirely on the small print, and the small print is where it fails.
- Speed bumps Some venues introduce a deliberate delay before every order. It sounds like sabotage. It is a targeted answer to a specific problem that speed alone cannot solve.
- Odd lots For decades the smallest orders were excluded from the official picture of the market. As share prices rose, that exclusion quietly stopped being harmless.
- Block trading Some trades are too large for any market to absorb. They get done by negotiation, and the whole business is about controlling who knows before it happens.
- Dark pools A venue that publishes no quotes sounds sinister and exists for a straightforward reason: showing a large order to the market is what makes it expensive to fill.
- Structured products A note offering equity upside with capital protection is a bond and an option in a wrapper. Knowing that, you can price it — and pricing it is what the wrapper discourages.
2025
- The total return swap A contract that pays you everything an asset earns, without you ever owning it. Useful, efficient, and the reason large positions can exist without appearing anywhere.
- Cash and carry The trade that keeps futures tied to spot is simple to describe and demanding to execute. What it requires — funding, storage, balance sheet — is why the relationship sometimes breaks.
- Contango and backwardation A futures price above spot is usually just storage and funding. A futures price below spot means somebody needs the physical thing now, and that is a different kind of information.
- Expiry On certain days a great deal of open interest stops existing at once. The trading around those days is mostly mechanical, and it is regularly reported as though it meant something.
- Exercise and assignment An option holder decides when to exercise. The seller has no say in whether they are chosen, and finding out how that choice is made is usually an unpleasant surprise.
- Put-call parity Calls and puts are not two separate instruments. Given one, the other is determined — and the relationship that fixes it is the most reliable in derivatives.
- What an option is An option is the right to change your mind. It has value because uncertainty has value, and it decays because the right expires whether you use it or not.
- What a swap is A swap exchanges one stream of payments for another. Nothing is bought, nothing is owned, and the notional amount everybody quotes never changes hands.
- Depositary receipts A company listed in one country can be traded in another through a certificate representing shares held in a vault. What keeps the two prices together is an arbitrage that sometimes stops working.
- Lock-ups and placements New shares reach the market through a small number of mechanisms with known dates. Every one of them is a scheduled increase in supply, and everybody can see it coming.
- The bookbuild A flotation is the one moment when a share's price is not discovered by a market. It is decided by a bank, from a book of indications, in a process designed to be slightly wrong.
- Free float A company's market value is calculated from every share in issue. Only some of them can ever be bought, and the difference decides how the price behaves.
- Corporate actions Companies split, merge, spin off and consolidate. Each event changes what a share represents, and every price series in the world has to be quietly rewritten to cope.
- Buybacks A buyback is a dividend that has been made optional, differently taxed, and considerably easier to disguise. The mechanics are simple; the incentives are not.
- The ex-dividend date On one morning each quarter a share opens lower for a reason that is not news. The mechanics are simple and they break a surprising amount of analysis.
- What a share is A share is not a small piece of a company in any useful sense. It is a claim on what is left after everyone else has been paid, plus a vote that is almost never worth casting.
- Covenants Once you have lent the money, your only control over what the borrower does next is what the documents say. Those terms have been weakening for two decades, quietly.
- The tranche Slicing a pool of loans into layers creates bonds that are genuinely safer than what they are built from. It also concentrates the model risk into the layer everyone believes is safe.
- Securitisation Pool thousands of loans, sell claims on the pool, and you can create a safe bond out of risky assets. The mechanism is sound. What it depends on is the part that fails.
- What a rating is A credit rating is an opinion about one narrow question, produced under a business model with an obvious conflict, and embedded in contracts that treat it as a fact.
- The credit default swap A credit default swap separates the risk that a borrower fails from the business of lending them money. That separation is genuinely useful and creates problems that took a decade to fix.
- Default and recovery Default is not a moment when the money vanishes. It is the start of a legal process about who gets what is left, and where you sit in that queue was decided years earlier.
- What a spread pays for A credit spread is assumed to be compensation for default. Most of it is not, and the part that is not explains why credit behaves the way it does.
- Collateral transformation Everyone demands high-quality collateral and there is only so much of it. The market that upgrades what you have into what you need is useful, profitable, and quietly fragile.
- When settlement fails Sometimes a security simply does not arrive. What happens next is governed by rules most participants never think about until the day they matter.
- Where bonds come from Government debt is sold at auction to a handful of firms who are required to bid. That obligation, and what it buys them, shapes the market everyone else trades in.
- The shape of the curve The yield curve is treated as an oracle. It is better understood as two things added together, and only one of them is a forecast.
- Convexity Duration assumes the relationship between price and yield is a straight line. It is a curve, and the curvature is worth money in one direction and costs money in the other.
- Duration Duration is quoted as a number of years, which is unfortunate, because what it actually measures is sensitivity — how far a bond moves when rates do.
- Yield Yield is quoted as though it were a single quantity. It is at least three, they disagree with each other, and the disagreements are where the information is.
- What a bond is A bond is a schedule of payments that has been made tradeable. Everything difficult about bonds comes from the fact that the schedule is fixed and the price is not.
- The FX swap The most traded instrument in the largest market in the world is not a bet on exchange rates. It is a secured loan, and reading it as a currency trade explains nothing.
- How a bank funds itself A bank's business is borrowing short and lending long. That mismatch is not a flaw in the model — it is the model, and it is why banks fail the way they do.
- The money market Trillions sit in instruments treated as cash that are not cash. The gap between those two words is where money market crises live.
- Open market operations A central bank intervening in a market is not expressing a view on prices. It is usually fixing a plumbing failure, and the two get confused constantly.
- Reserves Reserves are money that only banks can hold, they cannot leave the banking system, and almost everything commonly said about them being lent out is wrong.
- The shortest rate A central bank announces a rate it does not directly control. What it actually operates is a corridor, and the mechanism is more interesting than the announcement.
- What an interest rate is An interest rate is the price of having something now rather than later. Every other price in finance is built from that one, which is why it is worth being exact about it.