Micro

A Different Perspective

In this section, we'll explore microeconomics not through the lens of textbook theory but through my practical understanding of how markets function at the individual level. While macroeconomics concerns itself with large-scale events and systemic forces, microeconomics focuses on the behaviors and decisions of individuals and specific market mechanisms.

Understanding the Market Beast

What is the Market?

The market behaves like a living organism that feeds on liquidity. To understand how prices move, we need to understand the two fundamental order types:

1. Limit Orders: These reside in the order book and provide liquidity to the market. They specify the maximum price a buyer is willing to pay or the minimum price a seller is willing to accept.

2. Market Orders: These consume liquidity by executing immediately at whatever price is currently available in the order book.

Prices move only when market orders interact with limit orders. When market buy orders consume all available limit sell orders at a given price level, the price must move higher to find the next level of sell orders. Conversely, when market sell orders exhaust the limit buy orders at a price, the price falls to find additional buy orders.

At its core, this interaction represents the purest form of supply and demand dynamics. The depth of orders at various price levels, the ratio of market to limit orders, and the volume of trades all provide valuable information about market sentiment and potential price movements.

Note: This section is under construction. Future content will include detailed explanations of order flow dynamics, price discovery mechanisms, market inefficiencies, behavioral economics, and practical applications for traders.