ADJUSTED FUTURES PRICE
The cash price equivalent reflected in the current futures price. This is calculated by taking the futures price times the conversion factor for the particular financial instrument (e.g., bond or note) being delivered.
A brokerage firm is said to be an agent when it acts on behalf of the client in buying or selling shares. At no point in time in the entire transaction, the agent owns the shares.
ALL OR NONE (AON)
An order type, if the order can execute in total, then it executes. Otherwise, it stays in the order book until it can execute in total.This type of order is especially important for those who buy penny stocks. An all-or-none order ensures that you get either the entire quantity of stock you requested or none at all.
Making profit without the risk involved, it may be in form of taking advantage of the difference in price of a security traded on two or more stock exchanges, by buying in one and selling in the other. Given the speed at which the financial markets now operate, in practice the simultaneous purchase of foreign exchange, securities, commodities or any other financial instrument in one market and the sale in another at a higher price.
The lowest price an owner is willing to sell the stock or other financial instruments for. In other words, the ask refers to the price at which you can buy an asset or security from a seller.
It can be variously referred to as ask, the ask, asking price or offer price, offer.
Can be defined in two ways, depending on whether they are in connection with a company or a financial instrument. Referring to a company it is simply everything the company owns, including the cash, equipment, land, technology etc. which shows the total wealth of the company. Referring to financial instruments, various types are called asset classes, defined by the similar characteristics of the instruments within them, such as behavior on the market, laws, and regulations. The five main asset classes are Shares (also known as equities), Bonds (also known as fixed-income), Real Estate, Commodities, and Cash.
AT THE MONEY
At the money is a term used in options trading to describe the situation at which an option’s strike price is identical to the price of the underlying securities. In other words, it defines the proximity of an underlying asset’s price to the figure at which it can be bought or sold (known as its strike price). An at-the-money option has no intrinsic value, only time value. For example, with an “at the money” call stock option, the current share price and strike price are the same.
Also known as algorithmic trading – is the use of computer algorithms for making trades. An automated trading system (ATS) is a computer program that creates orders and automatically submits them to a market.
The process of gradually buying more and more securities in a declining market (or selling in arising market) in order to level out the purchase (or sale) price. This is when an investor buys more of a stock as the price goes down, to make average purchase price lower.
When physical share certificates along with transfer deeds are delivered in the market there are certain details to be filled in the transfer deed. Any improper execution of these details results in a bad delivery. A bad delivery may pertain to the transfer deed or the share certificate, and maybe because of the transfer deed being torn, mutilated, overwritten, defaced etc.
A system invented on the Bombay Stock Exchange, based on, carrying forward of transaction form one settlement period to the next without effecting delivery or payment. The carry-forward is done at the making up the price, which is usually the closing price of the last day of settlement. A badla transaction includes: ‘margin money’ specified by the stock exchange board and contango or badla charges (interest charges) determined on the basis of demand and supply forces.
In trading the terms base currency has two main definitions: the first currency quoted in a forex pair or the accounting currency used by banks and other businesses. Normally, it is either the domestic currency or the dominant forex currency. Firms dealing in multiple currencies calculate all profits and losses in the base currency.The base currency is assigned the value of 1 when calculating exchange rates. For example, if one is calculating the exchange rate of the U.S. dollar to the British pound and the pound is the base currency, it is expressed as GBPUSD and read as “dollars per one pound”.
A basis point (also referred to as bp) is a unit used in trading to describe movements in interest rates or other percentages. It is equal to one hundredth of one percent, or 0.01%.
Bears are traders who believe that a market, asset or financial instrument is heading in a downward trajectory.These ‘stockmarket animals’ are pessimists, they expect share prices or any other type of investment to fall. In a ‘bear market’ the general sentiment is that prices are going to go lower and a majority of dealers will sell as quickly as possible for fear of holding shares which diminish in value. Bears together with ‘Bulls’ drive the market, bears hold an opposite view to bulls, who believe that a market is going upwards.
A prolonged period of falling prices in a market, it is trading talk for the stock market being in a down trend, or a period of falling prices. This is the opposite of a bull market.
In other words, when the market is on a sustained downward trajectory, with little optimism from traders to bring about a rally, it is referred to as a bear market.
The actual owner of the security, irrespective of who is holding the financial instrument.
A measurement of the relationship between the price of a stock and the movement of the whole market. If stock XYZ has a beta of 3, that means that for every 1 point move in the market, stock XYZ moves 3 points and vice versa. It is a standard measure of risk for an individual stock. It is the sensitivity of the movement of the share price to the movement of the market as a whole. Stocks with betas greater than 1 amplify the movement of the market.
The difference between the ask price and bid price.
Bid is the price at which the market maker buys from the investor and offer is the price at which
he offers to sell the stock to the investor. The offer is higher than the bid.
An offer to buy a specific quantity of a financial instrument at a stated price or the price that the market participants are willing to pay.
It is the highest price a buyer is willing to pay for a financial instrument. It is opposite of ask/offer.
Blue Chips are shares of large, well-established and financially sound companies with an impressive record of earnings and dividends. Generally, Blue Chip stocks price volatility is moderate.
These are the large, industry leading companies, usually holding a record of consistently increasing rate of dividends over decades to its stock holders. The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.
The BoE is a popular shortening of the Bank of England, the central bank of the United Kingdom.
Bollinger bands are a popular form of technical price indicator. They were developed by a pioneering technical trader called John Bollinger in the 1980s.
It is promissory note issued by companies or government to its buyers. It speaks about the specified amount held for a specified time period by the buyer. They usually come in two varieties: corporate bonds and government bonds, depending on the type of institution you are lending to.
A free allotment of shares made in proportion to existing shares out of accumulated reserves. A bonus share does not constitute additional wealth to shareholders. It merely signifies recapitalization of reserves into equity capital. However, the expectation of bonus shares has a bullish impact on market sentiment and causes share prices to go up.
BOOK (ORDER BOOK)
An electronic record of managing all the pending buy and sell orders of financial instrument, organized by price level. The order book lists the number of shares being bid or offered at each price level, or market depth. It also identifies the market participants behind the buy and sell orders, although some choose to remain anonymous.
The order book is constantly updated in real time throughout the day. Exchanges such as Nasdaq refer to this order book as the “continuous book.” Orders that specify execution only at market open or market are maintained separately. These are known as the “opening (order) book” and “closing (order) book,” respectively.
An institution that arranges and manages the book building process for the new public issue.
The floor of a Stock Exchange.
When the price of a stock surpasses its initial high (resistance level) or falls below the initial low (support level), it is termed as break out in technical analysis.
Brent crude – also referred to as Brent blend – is one of oil benchmarks used by those trading oil contracts, futures and derivatives. The other two major benchmarks are West Texas Intermediate (WTI) and Dubai/Oman, though there are many smaller oil varieties traded as well..
BROKER (BROKERAGE FIRM)
A registered securities firm are called broker/brokerage firm. Broker’s acts as an advisor for purchase and sell of listed financial instruments, they do not own the securities at any point of the time. But they charge a commission for their service.
A bull is one who expects a rise in price financial instrument. Bulls are speculators who believe that a market, instrument, or sector is going on an upward trajectory. This belief puts them at odds with bears, who take a pessimistic view on a market’s direction.
A rising market with an abundance of buyers and few sellers, a prolonged period of increasing prices. Opposite of a bear market.
BUY LIMIT ORDER
An order of buying a financial instrument with a condition that order will not be executed above the specifically mentioned price.
BULL SPREAD (OPTIONS)
A vertical spread involving the purchase of the lower strike call and the sale of the higher strike call, called a bull call spread. Also, a vertical spread involving the purchase of the lower strike put and the sale of the higher strike put, called a bull put spread.
BULL SPREAD (FUTURES)
In most commodities and financial instruments, the term refers to buying the nearby month, and selling the deferred month, to profit from the change in the price relationship.
BUTTERFLY OPTIONS SPREAD
A three-legged option spread in which each leg has the same expiration date but different strike prices.
The placing of two inter-delivery spreads in opposite directions with the center delivery month common to both spreads.
BUY ON CLOSE
An order of buying a financial instrument, but only at the end of the trading day. Security will be bought in the closing price range.
CALENDAR SPREAD (FUTURES)
Also called an intra-commodity spread. The simultaneous purchase and sale of the same futures contract, but different contract months. (i.e., buying a September futures contract and selling a December futures contract).
CALENDAR SPREAD (OPTIONS)
The simultaneous purchase and sale of options on futures contracts of the same strike price, but different expiration dates.
This is the right, but not the obligation, to purchase underlying asset eg.shares at a specified price at a specified date in the future. For this privilege, the buyer pays a premium. Buying call option, you are gambling that the share price will rise above the option strike price. If this happens one can buy the shares and sell them immediately for a profit.If the share price does not rise above option strike price, an owner does not exercise the option and it expires, what owner has lost is the initial payment made to purchase the option – option price. Calls are option contracts that allow traders to profit when an asset’s price increases beyond a certain point within a specified time. They are the opposite of puts, which return a profit when an asset’s price decreases beyond a certain point within a defined period of time.
The test of an organization’s ability to meet its financial obligation.Capital adequacy rules mean that a bank/financial institution has to have enough money to conduct its business. Regulators try to ensure that banks and other financial institutions have sufficient capital to keep them out of difficulty. This not only protects depositors, but also the wider economy because the failure of a big bank/financial institution has extensive knock-on effects.Capital adequacy requirements have existed for a long time, but the two most important are those specified by the Basel Committee of the Bank for International Settlements.
The total value of the company in the stockmarket.This value is calculated at by multiplying the overall number of shares by the company’s share price. This market capitalization obviously
fluctuates as the share price moves up and down.
The risk that bonds will be redeemed (or “called”) before maturity. This possibility increases during periods of falling interest rates.
An increase in the value of an investment, measured by the increase in a fund unit’s value from the time of purchase to the time of redemption.
A market where debt or equity securities are traded.
Cash flow is the amount of money coming into and going out of a company’s accounts, as reported in earnings announcements. It can refer to a single project or the entire business.
A settlement method used in certain future and option contracts where, upon expiration or exercise, the buyer does not receive the underlying commodity but the associated cash position. For buyers not wishing to take actual possession of the underlying physical commodity, cash settlement is sometimes a more convenient method of transacting business. For example, the purchaser of an E-mini S&P future is unable to take ownership of the index at expiration. Therefore he simply pays or receives the difference between the purchase price and the price of S&P futures contract at settlement.
Contracts for difference, are a type of financial derivative – a contract between an investor and an investment bank or a spread-betting firm. At the end of the contract, the parties exchange the difference between the opening and closing prices of a specified financial instrument, including shares or commodities. CFD’S are widely used in speculation on financial markets.
A chartist is a trader who relies predominantly on charts to help them understand a financial instrument’s historical price movements, in order to better predict and to speculate on its future performance. They are also commonly known as technical analysts or technical traders.
A clearing house is an institution to act as an intermediary between both sides of transactions. it is an agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data.
The trade price of a security at the end of a trading day. Based on the closing price of the security, the base price at the beginning of the next trading day is calculated.
Clearing refers to the process by which mutual indebtedness among members is settled. The clearing corporation matches the final buyers and sellers through the multilateral netting. The
members of the clearing corporation also known as clearing members to settle their dues with the clearing house that is operated by the clearing corporation. The clearing corporation is the legal counterparty to both legs of every trade.
Product used for commerce that is traded on a separate, authorized commodities platform. Commodities include agricultural products and natural resources. A commodity is a basic physical asset, often used as a raw material in the production of goods or services.
A security (bonds, debentures, preferred stocks) by an issuer that can be converted into other securities of that issuer are known as convertible securities. The conversion usually occurs at the option of the holder, but it may occur at the option of the issuer.
A debt instrument issued by a corporation to meet their short-term financing needs. Such instruments are unsecured and have maturities ranging from 15 to 365 days.
In technical analysis, temporary reversal of trend in share prices. This could be a reaction (a decrease following a consistent rise in prices) or a rally (an increase following a consistent fall in prices). Usually of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation. Corrections are generally temporary price declines interrupting an uptrend in the market index or an asset price.
When a trading member enters an order, any other trading member with an order on the opposite side is referred to as the counterparty. In other words, other side of transaction.
COST OF CARRY
The cost of maintaining an investment position is often referred to as the cost of carry or carrying charge. It can come in many forms, including interest on margins or the loans used to make the trade, or the cost of storage and insurance associated with holding a commodity.
Interest rate on a debt security that the issuer promises to pay to the holder until maturity. Usually expressed as a percentage of the face value
A covered call is when a trader sells (or writes) call options in an asset that they currently have a long position on. They are also known as buy-writes.
A corporate bond is a debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company’s physical assets may be used as collateral for bonds. When one invests in a corporate bond, one are lends money to the company. In return investor will receive interest and the promise that your capital will be repaid at a certain date in the future. The guarantee that our capital will be returned is only as good as the company issuing bond.
CPI stands for consumer price index, an average of several consumer goods and services that are used to give an indication of inflation.
A currency peg is a governmental policy of fixing the exchange rate of its currency to that of another currency, or occasionally to the gold price. It can sometimes also be referred to as a fixed exchange rate or pegging.
CAPITAL ASSET PRICING MODEL (CAPM)
The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between expected return and risk of a security. It shows that the return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security.
When a stock price increases or decreases by a certain percentage in a single day it hits the circuit breaker. Once the stock hits the circuit breaker, trading in the stock above (or below) that price is not allowed for that particular day.
The fees charged by the custodian for keeping the securities.
Cumulative preference share
Preference shares whose dividends will get accumulated, if the issuer does not make timely dividend payments.
Convertible preference shares
Preference shares that can be converted into equity shares at the option of the holder.
Commercial Paper (CP)
CPs are negotiable, short-term, unsecured, promissory notes with fixed maturities, issued by well
rated companies generally sold on a discount basis.
It is the risk that the other party to a contract may not fulfill the terms of a contract.
Debentures: A type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer.A debenture is an unsecured form of investment.
This is the income you receive as a shareholder from a company. When you buy an ordinary share in a company, you become a shareholder (an owner of the business) and to that extent, you will have certain entitlements including the right to receive dividend payments as set by the board of directors and approved by the shareholders (sometimes called members.)A dividend is a cut of the profits earned by the business for the year. This pay-out is not guaranteed and where it exists at all, the amount you’ll receive will vary from company to company and year to year.
Dividends from Mutual Funds
Mutual Fund dividends are paid on the face value of the units (usually Rs. 10 per unit). Unlike a dividend from an equity share, mutual fund dividends are not necessarily paid out of the profits of the scheme. As such, after the payout of the dividend, the Net Asset Value (NAV) of the scheme falls to the extent of the payout.
Day trading is the buying and selling of stocks during the trading day by individuals known as day traders on their own account. The aim is to make a profit on the day and have no open
positions at the close of the trading session, the day.Day trading is a strategy of short-term investment that involves closing out all trades before the market closes.
A loan raised by a company, paying a fixed rate of interest and which is secured on the assets of the company. Debentures are fixed interest securities in return for long-term loans, they tend to be dated for redemption between ten and forty years ahead of the date of issue. They may be secured by a floating charge on the company’s assets or they may be tied to specific, named
assets. Debenture interest has to be paid by a company whether it makes a profit or not – if the debenture holders do not get paid they can legally force the company into liquidation to realize their claims on the company’s assets.
A stock that provides constant dividends and stable earnings even in the periods of an economic downturn i.e. even in the extreme critical situations of the stock market these companies continue to pay the dividends at a constant rate.
The ratio that compares the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the hedge ratio. It has a range from 0 to 1. A derivative’s delta is defined as its price movement in relation to the change in the price of its underlying asset. It can also sometimes be referred to as a hedge ratio and is most often used when dealing with options.
Instruments derived from securities or physical markets. The most common types of derivatives that ordinary investors are likely to come across are futures, options, warrants and convertible
bonds. Beyond this, the range of derivatives possible is only limited by the imagination of investment banks. In other words, new derivatives are being created all the time. It is likely nowadays that any person who has funds invested will unwittingly perhaps be indirectly exposed to derivatives.A security whose price is derived from one or more underlying assets. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. A derivative is a financial product that enables traders to speculate on the price movement of assets without purchasing the assets themselves. Because there is nothing physical being traded when derivative positions are opened, they usually exist as a contract between two parties.
A transaction may be for “spot delivery” (delivery and payment on the same or next day) “hand delivery” (delivery and payment on the date stipulated by the exchange, normally within two
weeks of the contract date), special delivery (delivery and payment beyond fourteen days limit subject to the exact date being specified at the time of contract and authorized by the exchange)
or “clearing” (clearance and settlement through the clearing house).
Day Minimum/Maximum range
The minimum/maximum price range for a security on a trading day. Buy orders outside the Maximum of the range and sell orders outside the Minimum of the range are not allowed to be
entered into the system. It is calculated as a percentage of the Base price.
A day order, as the name suggests, is an order which is valid for the day on which it is entered. If the order is not matched during the day, at the end of the trading day the order gets canceled automatically
A user belonging to a Trading Member. Dealers can participate in the market on behalf of the Trading Member.
Disclosed Quantity (DQ)
A dealer can enter such an order in the system wherein only a fraction of the order quantity is disclosed to the market. If an order has an undisclosed quantity, then it trades in quantities of the disclosed quantity.
Demat trading is trading of shares that are in the electronic form or dematerialised shares. Dematerialisation is the process by which shares in the physical form are cancelled and credit in
the form of electronic balances are maintained on highly secure systems at the depository
Date of payment
Date on which dividend cheques are mailed.
In spread betting, DFB stands for a daily funded bet.
The price fixed by the clearing house at which deliveries on futures are to take place. In practice, at this price contracts are settled by payment or receipt of the difference.
The date on which forward or futures contract for sale falls due.
Deposit margin definition
Deposit margin is the amount a trader needs to put up in order to open a leveraged trading position. It can also be known as the initial margin, or just as the deposit.
Reducing the investment risk by purchasing shares of different companies operating in different sectors. DiversificationInvesting in a basket of shares with different risk-reward profile and correlation so as to minimize unsystematic risk.
A dividend is a portion of a company’s earnings that is paid to shareholders, or people that own hat company’s stock, on a quarterly or annual basis. Not all company’s do this. A portion of the company’s earnings decided to pay to its shareholders in return for their investments. It is usually declared as a percentage of current share price or some specified INR value, usually decided by the board of directors of the company.
Annual dividend paid on a share of a company divided by the current share price of that company.
Discounted payback period
A period in which future discounted cash in- flows equal the initial outflow.
The expected rate of return by which, future cash flows are deflated. The discount rate is annual rate and deflating future cash flow takes place in a compounded manner.
When trading, DMA stands for direct market access. It’s a way of placing trades that offers more flexibility and transparency than traditional dealing (which is usually referred to as OTC, or over-the-counter). It’s suitable for advanced traders.
EBITDA stands for ‘earnings before interest, taxes, depreciation and amortization’. It is calculated by taking away the above figures from a company’s total revenue, to give an idea of the profit made before tax and other financial factors are taken into account.
When traders talk about the ECB, they are referring to the European Central Bank, the central bank for the eurozone.
EDSP stands for exchange delivery settlement price. It refers to the price at which derivative contracts on exchanges are settled.
Common and preferred stocks, which represents shares in the ownership of a company.
An exchange is a place in which different investments are traded. The most well-known in the United States are the New York Stock Exchange and the Nasdaq. An exchange is a marketplace where financial instruments – such as commodities, stocks, or derivatives – are traded. They can be either physical, like the New York Stock Exchange, or purely digital like a bitcoin exchange.
The share is described as ex-bonus when a potential purchaser is not entitled to receive the current bonus, the right to which remains with the seller.
When an order to buy or sell has been completed. If you put in an order to sell 100 shares, this means that all 100 shares have been sold. In trading, execution is the completion of a buy or sell order from a trader. It is carried out by a broker.
The share is described as ex-rights when a potential purchaser is not entitled to receive the current rights, the right of which remains with the seller.
Earnings Per Share (EPS)
It is the most important measure of how well (or otherwise) the board of directors is doing for the shareholders. This measure expresses how much the company is earning for every share held.
The calculation is ‘pre-tax profit dividend by the number of shares in issue’. Earnings per share is more important than the overall reported profit figure! The reason is that EPS provides a more pure measure of profitability.Earnings per share, or EPS, is an important metric in a company’s earnings figures. It is derived from the total amount of profit generated in a period, divided by the number of shares in the company listed on the stock market.
A Eurobond is a medium or long-term interest-bearing bond created in the international capital markets. A Eurobond is denominated in a currency other than that of the place where it is being
issued. Eurobonds are only issued by major borrowers, such as governments, other public bodies or large multinational companies.
This is a share sold without the right to receive the declared dividend payment that is marked as due to those shareholders who are on the share register at a pre-announced date. The stock
market authorities usually specify the date on which a share will begin trading ex div. The share price invariably drops when the share goes ex dividend, taking the known income of the
dividend out of the share price.
A stock or bond sold without the right of receipt of the next due interest payment.
Employee Stock Option Plan is a trust established by a company to allot some of its paid-up equity capital to its employees over a period of time. They are used to reward employees.
The pre-determined price at which the underlying future or options contract may be bought or sold.
Exercising the option
The act of buying or selling the underlying asset via the option contract.
In trading, exposure is a general term that can mean three things: the total market value of your trades at open, the total amount of possible risk at any given point, or the portion of a fund invested in a particular market or asset
Efficient capital market
A market in which all the players have all the material information at their disposal at the same time.
It is the cash denomination or the amount of money the holder of the individual security going to earn from the issuer of the security at the time of maturity. It is also known as par value.
The FCA, or Financial Conduct Authority, is the United Kingdom’s financial regulatory body. It is the successor to the FSA or Financial Services Authority.
The Federal Reserve Bank, or the ‘Fed’ for short, is the central bank in charge of monetary and financial stability in the United States. It is part of a wider system – known as the Federal Reserve system – with 12 regional central banks located in major cities across the US.
A Fibonacci retracement is a key technical analysis tool, used to gain insight into when to place and close trades or place stops and limits.
The FOMC, or Federal Open Market Committee, is the branch of the Federal Reserve bank that is in charge of short and long-term monetary policy decisions.
Forex is how market participants convert one currency to another. It can variously be referred to as foreign exchange, FX, or currencies.Forex trading is the act of taking part in the forex market in order to speculate and attempt to make a profit. It can also be known as FX trading, foreign exchange or currencies trading.
A forward contract is a contract that has a defined date of expiry. The contract can vary between different instances, making it a non-standardised entity that can be customized according to the asset being traded, expiry date and the amount being traded.
Fundamental analysis is a method of evaluating assets on the basis of external events and influences, as well as financial statements on the asset itself. It is used by traders to make decisions on different assets by measuring the economic, financial and market conditions that can affect its price.
Futures contracts represent an agreement between two parties to trade an asset at a defined price on a specified date in the future. They are also often referred to simply as ‘futures’.
Gamma is a derivative of delta: the relationship between a derivative’s price and the price of its underlying asset. Specifically, gamma is the movement of the delta in regard to the price of the underlying asset.
GDP stands for gross domestic product or the total value of the goods and services produced in a country over a specified period. It is used as an indicator of the size and health of a country’s economy.
Gross margin is a way of measuring the amount of profit a company can make from its revenue.
This is used to limit your losses. You can do this by taking an offsetting position. For example, if you hold 100 shares of XYZ, you could short the stock or futures positions on the stock.
A strategy or an attempt in reducing the risk of adverse price movements of assets. A hedge is an investment or trade designed to reduce your existing exposure to risk. The process of reducing risk via investments is called ‘hedging’.
In trading, the handle has two meanings. In most markets, it means the whole numbers involved in a price quote, without the decimals included. In forex, the handle refers to that part of the quote that appears in both numbers of the spread.
A hedge fund is a managed portfolio of investments that uses advanced investment strategies to maximize returns, either in an absolute sense or relative to a specified market benchmark. The name hedge fund is mostly historical, as the first hedge funds tried to hedge against the risk of a bear market by shorting the market. Today, hedge funds use hundreds of different strategies in an effort to maximize returns. The diverse and highly liquid futures marketplace offers hedge funds the ability to execute large transactions and either increase or decrease the market exposure of their portfolio.
High-frequency trading (or HFT) is a form of an advanced trading platform that processes high numbers of trades very quickly using powerful computing technology. It can be used to either find the best price for a single large order or to find opportunities for profit in the market in real time.
A security which has a solid record of dividend payments and offers the dividend higher than the common stocks.
An index is a benchmark which is used as a reference marker for traders and portfolio managers. A 10% may sound good, but if the market index returned 12%, then you didn’t do very well since you could have just invested in an index fund and saved time by not trading frequently. Examples are the Dow Jones Industrial Average and Standard & Poor’s 500. A statistical measurement of change in the economy or security market. Indices have their own calculation methodology and are usually measured as a percentage change in the base value over the time.
In trading, an index is a grouping of financial assets that are used to give a performance indicator of a particular sector. The plural term is indices. Indices trading is the means by which traders attempt to make a profit from the price movements of indices.
Initial Public Offering (IPO)
The first sale or offering of a stock by a company to the public, rather than just being owned by private or inside investors. A company’s first issue of shares to general public. IPOs are issued by smaller, younger companies seeking funds for expansion and growth, but large companies also practice this to become publicly traded companies. When a company embarks on an IPO (which stands for initial public offering) it goes public on a stock exchange. This can also be known as floating, flotation, or just ‘going public’.
In finance, interest can have more than one definition. Firstly it refers to the charge levied against a party for borrowing money, which can be either a cost or a means of making a profit for a trader. Secondly, it can mean the portion of a company’s stocks held by a particular shareholder. The amount that a lender charges to a borrower for the loan of an asset usually expressed as a percentage of the amount borrowed. That percentage usually refers to the amount being paid each year (known as annual percentage rate, or APR) but can be used to express payments on a more or less regular basis.
In investing, intrinsic value can have two different meanings. Firstly, in options, it is the difference between the underlying asset’s price and the option’s strike price. Secondly, it can refer to the ‘true’ value of a company as perceived by an investor.
In the money
In the money is a term that describes an option’s state of ‘moneyness’ – the underlying asset’s status when compared to the price at which it can be bought or sold (its strike price).
Leverage is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital. Leveraged products are financial instruments that enable traders to gain greater exposure to the market without increasing their capital investment. They do so by using leverage.
A company’s liabilities are the debts and obligations represented on its balance sheet. They are the opposite of assets.
LIBOR, or the London Interbank Offered Rate, is a benchmark that dictates daily interest rates on loans and financial instruments around the world.
An order to buy or sell a share at a specified price. The order will be executed only at the specified limit price or even better. A limit order sets a minimum price the seller is willing to accept and maximum price the buyer is willing to pay for it. A limit order is an instruction to your broker to execute a trade at a particular level that is more favorable than the current market price
Limit up / limit down
Limit up and limit down are the maximum amounts a commodity future may increase (limit up) or decrease (limit down) in any single trading day.
In investment, liquidity is the ease of buying or selling a particular asset in the market without affecting its price. It can also refer to the facility of converting an asset to cash quickly and easily.
The shares of an issuer that are traded on the stock exchange. The issuer has to pay fees to be listed on the stock exchange and abide by the regulations of the stock exchange to maintain listing privilege.
When used in trading, long refers to a position that makes a profit if an asset’s market price increases. Usually used in context as ‘taking a long position’, or ‘going long’.
A lot is a standardized group of assets that is traded instead of a single asset.
M2 is a measure of money supply, referring to a certain portion of the money contained in an economy.
A margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan and the price of the securities is called the margin. In trading, a margin is the funds required to open and maintain a leveraged position.
Maintenance margin is the amount that must be available in funds in order to keep a margin trade open. It is also known as the variation margin.
A margin call is a term for when a broker requests an increase maintenance margin from a trader, in order to keep a leveraged trade open. If you add to a position or sustain a loss and your account no longer meets the performance requirements, you will receive a margin or a performance bond call from your broker. The margin call will require that you either add money to the account or reduce your positions until the minimum performance bond requirements are satisfied. Brokerage firms may suspend trading privileges or close accounts that are unable to meet their minimum performance bond requirements. Mark-to-market is an important safety measure that provides additional protection for you and your brokerage firm. Combined with other financial safeguards, mark-to-market is a major benefit of doing business on a regulated exchange.
A market can have several meanings within investments. Generally, it is defined as a medium through which assets are traded, with their value determined by supply and demand.
The total value in INR of all of a company’s outstanding shares. It is calculated by multiplying all the outstanding shares with the current market price of one share. It determines the company’s size in terms of its wealth. A company’s market capitalization is the total value of its outstanding shares on the market. It is also referred to as market cap.
A market maker is an individual or institution that buys and sells large amounts of a particular asset in order to facilitate liquidity. Market makers are trading firms that have contractually agreed to provide liquidity to the markets, continually providing both bids (an expression to buy) and offers (an expression to sell), usually in exchange for a reduction in trading fees. Increasingly important are electronic market makers who as a group, provide much of the market liquidity that allows large transactions to take place without affecting a substantial
change in price. Market makers often profit from capturing the spread, the small difference between the bid and offer prices over a large number of transactions, or by
trading related futures markets that they view as being priced to provide opportunity
A market order is an instruction from a trader to a broker to execute a trade immediately at the best available price.
Futures contracts follow a practice known as mark-to-market. At the end of each trading day, the Exchange sets a settlement price based on the day’s closing price range for each contract. Each trading account is credited or debited based on that day’s profits or losses and checked to ensure that the trading account maintains the appropriate margin for all open positions. As described in the “Why Trade Futures?” section on page 9, your position in the market is secured by a performance bond. A performance bond is an amount of money that must be deposited with your broker to open or maintain a position in a futures account. This good-faith money helps to ensure that all market participants are able to meet their obligations. It helps maintain
confidence in the financial integrity of the Exchange as a whole. The practice of marking accounts to market helps ensure that your account maintains sufficient capital to meet margin requirements on a daily basis.
A stock’s average price-per-share during a specific period of time. Some time frames are 50 and 200-day moving averages. A moving average (often shortened to MA) is a common indicator in technical analysis, used to examine price movements of assets while lessening the impact of random price spikes.
A pool of money managed by experts by investing in stocks, bonds and other securities with the objective of improving their savings. These experts will create a diversified portfolio from these funds.
MetaTrader is an electronic trading platform which is popular among traders around the world.
Multilateral trading facilities
Multilateral trading facilities (MTFs) offer traders and investment firms an alternative to traditional exchanges. They allow trading of a wider variety of markets than most exchanges, including assets that may not have an official market.
Net change is the difference in an asset’s closing price from one day to the next. It is a commonly used method of quoting the price movements of stocks and funds.
Net income is the total amount of profit (often known as earnings) made by a company, listed in its earnings report.
Non-farm payrolls are a monthly statistic representing how many people are employed in the US, in manufacturing, construction and goods companies. They can also be known as non-farms or NFP.
A number of shares which are less than or greater than but not equal to the board lot size. For example, if the board lot size is 100 shares, an odd lot would be 95 or 102 shares. Usually odd lots are difficult for trading and it is not accepted easily in the market.
An ‘off-book’ trade refers to a stock trade that is executed away from the exchange, via the OTC market.
A market that has only potential sellers or only potential buyers but not both.
An investor’s bid to buy or sell a certain amount of stock or options contracts. You have to put an order in to buy or sell 100 shares of stock.
For call options, this means the stock price is below the strike price. For put options, this means the stock price is above the strike price. The price of out-of-the-money options consists entirely of “time value. “Out of the money is one of three terms used in options trading, referring to an underlying asset’s price in relation to the price at which it can be bought or sold (its strike price).
Offer is the term used when one trader expresses an intention to buy an asset or financial instrument from another trader or institution.
OPEC stands for the Organisation of Petroleum Exporting Countries. It is a group comprising all of the world’s top oil-producing nations, founded to coordinate oil policy as well as sharing economic and technical aid.
An option is a financial instrument that offers you the right – but not the obligation – to buy or sell an asset when its price moves beyond a certain price with a set time period.
An option spread is a strategy used in options trading. It involves buying and selling multiple options on the same underlying asset that are almost identical to each other but with a different strike price or expiry.
OTC stands for over-the-counter and refers to a trade that is not made on a formal exchange. It is often also referred to as off-exchange trading.
A pip is a measurement of movement in forex trading, defined as the smallest move that a currency can make. Pip value is the value attributed to a one-pip move in a forex trade.
PMI stands for purchasing managers index, a useful indicator of health in a particular sector within an economy. In the UK, Markit produces a PMI for the manufacturing, services and construction industries.
A collection of investments owned by an investor. You can have as little as one stock in a portfolio to an infinite amount of stocks. Holding of any individual or institution. A portfolio may include various type of securities of different companies operating in different sectors.
A position is a financial term for a trade that is either currently able to incur a profit or a loss (an open position) or has recently been canceled (a closed position). Positions are the way in which a trader will hope to make a profit.
A maximum number of futures and options contract that any individual investor can hold at any given point of time.
The pre-open session is for a duration of 15 minutes i.e. from 9:00 AM to 9:15 AM. In pre-open session order entry, modification and cancellation take place.
Price-Earnings (P/E) Ratio
A valuation of companies last traded share price to its latest reported 12 months earnings per share. For example, if the last traded share price of any X company is INR 40 and earnings over a last 12 months per share is INR 2, then the P/E ratio of that X company is INR 20 (40/2) P/E ratio is an important metric used to assess the relative value of a stock (or sometimes an index or industry). It is calculated as its share price divided by earnings per share (EPS).
Proprietary Trading Firms
Proprietary trading firms, also known as prop shops, profit as a direct result of their traders’ activity in the marketplace. These firms supply their traders with the education
and capital required to execute a large number of trades per day. By using the capital resources of the prop shop, traders gain access to more leverage than they would if
they were trading on their own account. They also gain access to the type of research and strategies developed by larger institutions.
An option that is given to investor the right to sell a particular stock at a stated price within a specified time period. A put option is purchased by those who believe that particular stock price is going to fall down than the stated price. Puts are a variety of option that gives the purchaser the right, but not the obligation, to sell an asset at a certain price before the option expires.
Quantitative easing (or QE, for short) is an economic monetary policy intended to lower interest rates and increase the money supply. It saw an increase in profile and use after the 2008 financial crash and subsequent recession.
Information on a stock’s latest trading price. This is sometimes delayed by 20 minutes unless you are using an actual broker trading platform. The quote currency is the second currency listed in a forex pair. It is also known as the counter currency. In trading, the quote is the price at which an asset was last traded or the price at which it can currently be bought or sold.
A rapid increase in the general price level of the market or of the price of a stock. A rally is a period in which the price of an asset, market or index sees sustained upward momentum. Typically, a rally will arrive after a period in which prices have been flat or in a decline.
A probable chance of investments actual returns will be reduced then as calculated. A risk is usually measured by calculating the standard deviation of the historical price returns. Standard deviation is directly proportional to the degree of risk associated. Risk management is the process of identifying potential risks in your investment portfolio and taking steps to mitigate accordingly. In trading, risks are the ways in which an investment can end up losing you money.
A rights issue is the term for when a company offers more of its shares to current shareholders, usually to raise extra capital. It differs from other additional shares offerings, where shares are available for any investor willing to buy.
A ratio spread is a strategy used in options trading, in which a trader will hold an unequal number of buy and sell options positions on a single underlying asset at once.
A resistance level is a key tool in technical analysis, indicating when an asset has reached a price level that market participants are unwilling to surpass.
A reversal is a turnaround in the price movement of an asset: when an upward trend (or a rally) becomes a downward one (a correction), or vice versa. They can also often be referred to as trend reversals.
RNS is short for the Regulatory News Service, a part of the London Stock Exchange. The RNS sends regulatory and non-regulatory information on behalf of businesses and other companies, helping them to comply with the disclosure obligations set out by regulators around the world.
ROCE stands for return on capital employed: a ratio which measures how effectively a company uses capital.
RSI stands for the relative strength index. It is a key tool used in technical analysis, assessing the momentum of assets to gauge whether they are in overbought or oversold territory.
A scalp in trading is the act of opening and then closing a position very quickly, in the hope of profiting from small price movements.
The SEC stands for the US Securities and Exchange Commission. It is a government agency set up to regulate markets and protect investors in the United States, as well as overseeing any mergers and acquisitions.
A group of stocks that are in the same business. An example would be the “Technology” sector including companies like Apple and Microsoft. Sectors are divisions within an economy or market, useful for analyzing performance or comparing companies with similar outputs and characteristics.
A transferable certificate of ownership of investment in products such as stocks, bonds, future contracts and options which an individual holds.
Shares are the units of the ownership of a company, usually traded on the stock market. They are also known as stocks or equities. Shares trading is the buying and selling of company stock – or derivative products based on company stock – in the hope of making a profit.
In trading, short describes a trade that will incur a profit if the asset being traded falls in price. It is also often referred to as going short, shorting or sometimes selling.
Short selling is the act of selling an asset that you do not currently own, in the hope that it will decrease in value and you can close the trade for a profit. It is also known as shorting.
When the price at which an order is executed does not match the price at which it was made, it is referred to as slippage.
Smart order router
A smart order router (SOR) is an automated process used in online trading that follows a set of rules when looking for trading liquidity. The goal of an SOR is to find the best way of executing a trade.
SNB stands for Swiss National Bank, the central bank for Switzerland.
In trading, spot refers to the price of an asset for immediate delivery or the value of an asset at any exact given time. It differs from an asset’s futures price, which is the price for delivery at some date in the future, or its expected price.
This is the difference between the bid and the ask prices of a stock, or the amount someone is willing to buy it and someone is willing to sell it. In finance, the spread is the difference in price between the buy (bid) and sell (offer) prices quoted for an asset.
Spread betting is a leveraged financial derivative. When spread betting, you are making a bet on the direction in which a market will move. The accuracy of your bet determines the profit or loss when the position is closed.
A one-character to three-character, alphabetic root symbol, which represents a publically traded company on a stock exchange. Apple’s stock symbol is AAPL.
A stock symbol is a unique series of letters or numbers, used to identify a stock traded on a stock exchange. They are also sometimes referred to as stock tickers or ticker symbols.
An attempt to increase the number of outstanding shares of a company by splitting the existing shares. It is usually done to increase the availability of shares in the market. The usual split ratio is 2:1 or 3:1, i.e. one share is split into two or three.
Stop orders are types of order that instruct your broker to execute a trade when it reaches a particular level: one which is less favorable than the current market price. They can also be known as stop-loss orders.
A straddle is a type of options trading strategy that allows traders to speculate on whether a market is about to become volatile or not, without having to predict a specific price movement. Straddles involve either buying or selling simultaneous call and put options with matching strike prices and expiration dates.
The price at which the holder of an option can buy (in a case of call option) or sell (in a case of a put option) the securities they hold when the option is executed.
In options trading, the strike is the price at which a contract can be exercised and the price at which the underlying asset will be bought or sold. It is also known as the strike price.
A support level is a price at which an asset may find difficulty falling below as traders look to buy around that level.
Tangible assets are the assets on a company’s books and a balance sheet that have a physical form. They comprise the machinery, office equipment and buildings used by a company (fixed assets) and of the materials that are used in producing products (current assets).
Technical analysis is a means of examining and predicting price movements in the financial markets, based on an asset’s chart history. It is one of the two major schools of market analysis, with the other being fundamental analysis.
A market in which there are a comparatively low number of bids to buy and offers to sell. Since the number of transactions is low the prices are very volatile.
Tom-next is short for the tomorrow-next day, the means by which forex speculators avoid taking physical delivery of currency and are able to keep forex positions open overnight.
A trading floor is the area of a business or an exchange where assets are bought and sold, most commonly associated with stock exchanges and futures exchanges. It is also often referred to as a trading pit.
Treasury stock is the portion of a company’s shares that it keeps in its own treasury. The shares do not count towards the total amount of outstanding shares listed, and neither pay dividends nor carry voting rights (because a company cannot pay itself, or own itself).
The period of time from 9:15 AM to 3:30 PM is open for trading for both sellers and buyers, within this time frame all the orders of the day must be placed. Here all the orders placed in pre-opening sessions are matched and executed.
A trailing stop is a type of stop-loss that automatically follows positive market movements of an asset you are trading. If your position moves favourably but then reverses, a trailing stop can lock in your profits and close the position.
Volatility: This refers to the price movements of a stock or the stock market as a whole. Highly volatile stocks are ones with extreme daily up and down movements and wide intraday trading ranges. This is often common with stocks that are thinly traded, or have low trading volumes. This is also common with the stocks that Tim trades.
When a market is making a clear, sustained move upwards or downwards, it is called a trend. Identifying the beginning and end of trends is a key part of a market analysis. Trends can apply to individual assets, sectors, or even interest rates and bond yields. A trending share is a term for when a company’s stock is undergoing a significant move in comparison to its underlying index. The trend can be either upwards or downwards.
Unborrowable stock is the stock that no one is willing to lend out to short sellers. When shares in a company become unborrowable, the traditional means of short selling them is impossible.
VIX is short for the Chicago Board Options Exchange Volatility Index. It is a measure used to track volatility on the S&P 500 index, and is the most well-known volatility index on the markets.
A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time. Certain futures contracts regularly experience a wider daily trading range than others and are therefore considered to be more volatile. This volatility is an important variable in determining risk and/or profit opportunity. For example, soybeans have traditionally
had a larger daily price range than oats. Some traders prefer the more volatile contracts because the potential for profit can be greater, while the transactional cost of trading
remains essentially the same. Other traders, however, find that the least volatile contracts are better suited to their particular strategies because higher volatility means the potential for loss can also be greater.
The number of shares of the stock traded during a particular time period, normally measured in average daily trading volume. In trading, a volume is the amount of a particular asset that is being traded over a certain period of time. It is often presented alongside price information, as it offers an extra dimension when examining an asset’s price history.
VWAP stands for volume weighted average price, a trading benchmark that is often used by passive investors. It reflects the ratio of an asset’s price to its total trade volume.
This usually refers to the measure of the return on an investment that is received from the payment of a dividend. This is determined by dividing the annual dividend amount by the price paid for the stock. If you bought stock XYZ for $40-a-share and it pays a $1.00-per-year dividend, you have a “yield” of 2.5% It is the measure of return on investments in terms of percentage. Stock yield is calculated by dividing the current price of the share by the annual dividend paid by the company for that share. For example, if the current price of the share is INR 100 and the dividend paid is INR 5 per share annually, then the stock yield is 5%.