Copy and save these links, there is a lot of useful information there...
Diagrams courtesy of Tmoss & Stang&2birds
Ignition switch wiring
Starter circuit
See the following website for some help from Tmoss (diagram designer) & Stang&2Birds (website host) for help on 88-95 wiring; http://www.veryuseful.com/mustang/tech/engine/ Everyone should bookmark this site.
Those links are extremely useful. I have printed many of the diagrams and keep them in the car for quick reference (I also have the shop manuals, but the electrical can be frustrating because my wiring colors usually don't match the diagrams/pinouts).
In this case, I haven't found any diagram or forum mentions of the wire pictured. It looks like it was spliced into the red/green ignition wire by a previous owner and later severed. My plan is to cut out that butt connector and make a proper splice, but I don't know what to do about the stray wire. There's also a severed wire of the same gauge that terminates in the general vicinity of the ignition switch, but it's a different color so I'd assume it wasn't connected to the first wire. I will try to track that second wire to see where it leads. I just don't know what might have been spliced into pictured ignition switch wire at one time.
It could be an alarm or other accessory since it was spliced in. At some point in time , the PO removed it and left the stub. That stub is a short circuit looking for a time to happen...
It could be an alarm or other accessory since it was spliced in. At some point in time , the PO removed it and left the stub. That stub is a short circuit looking for a time to happen...