Navigate the lexicon of trading with ease
Embark on a journey through the alphabetized world of trading terms. This vocabulary page is crafted to demystify the jargon, providing clear definitions and helping you become fluent in the language of the markets. From ‘Arbitrage’ to ‘Zero-Sum Game,’ each term is a piece of the puzzle in understanding the complex financial narratives that drive market decisions.
a
- Alpha: A measure of performance on a risk-adjusted basis, representing the excess return of an investment relative to the return of a benchmark index.
- Arbitrage: The simultaneous purchase and sale of an asset to profit from a difference in the price.
- Ask: The lowest price a seller is willing to accept for a security.
b
- Basis Point: A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument; one basis point is equivalent to 0.01%.
- Bear Market: A market condition in which the prices of securities are falling, encouraging selling.
- Bid: The highest price a buyer is willing to pay for a security.
c
- Candlestick Chart: A type of financial chart used to describe price movements of a security, derivative, or currency.
- Commodities: Basic goods used in commerce that are interchangeable with other goods of the same type.
- Contract for Difference (CFD): A popular form of derivative trading that allows you to speculate on the rising or falling prices of fast-moving global financial markets.
d
- Day Trading: The practice of buying and selling within the same trading day before the close of the markets on that day.
- Diversification: A risk management strategy that mixes a wide variety of investments within a portfolio.
- Dividend: A portion of a company’s earnings distributed to shareholders.
e
- Equity: The value of an asset after deducting the value of liabilities.
- Exchange-Traded Fund (ETF): A marketable security that tracks an index, commodity, bond, or basket of assets like an index fund.
- Expiry Date: The date on which a derivative contract, such as an options or futures contract, expires.
f
- Fill or Kill (FOK): An order to buy or sell a stock that must be executed immediately; otherwise, the entire order will be cancelled (no partial fulfilment).
- Fundamental Analysis: A method of measuring a security’s intrinsic value by examining related economic and financial factors.
- Futures Contract: A legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future.
g
- Gap: A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between.
- Going Long: The purchase of a stock, commodity, or currency with the expectation that it will rise in value.
- Gross Margin: The difference between revenue and cost of goods sold divided by revenue, expressed as a percentage.
h
- Hedge: An investment to reduce the risk of adverse price movements in an asset.
- High-Frequency Trading (HFT): A type of algorithmic trading characterised by high speeds, high turnover rates, and high order-to-trade ratios.
i
- Index Fund: A type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the S&P 500.
- Initial Public Offering (IPO): The first time that the stock of a private company is offered to the public.
- Interest Rate: The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.
j
- Joint Account: An account shared by two or more individuals who control the account and its assets.
- Joint Venture (JV): A business arrangement in which two or more parties agree to pool their resources to accomplish a specific task.
- Junk Bonds: High-yield or non-investment grade bonds with a lower credit rating than investment-grade corporate bonds.
k
- Key Rate Duration: A measure of a bond’s or fixed income portfolio’s sensitivity to a 1% change in interest rates.
- Knock-In Option: A latent option contract that begins functioning as a standard option (“knocks in”) only once a certain price level is reached before expiration.
l
- Leverage: The use of various financial instruments or borrowed capital to increase the potential return of an investment.
- Limit Order: An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
- Liquidity: The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.
m
- Market Capitalization: The total dollar market value of a company’s outstanding shares.
- Market Order: An order to buy or sell a stock at the market’s current best available price.
- Moving Average: A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random price fluctuations.
n
- Naked Shorting: The illegal practice of short-selling shares that have not been affirmatively determined to exist.
- Net Asset Value (NAV): The value per share of a mutual fund or an exchange-traded fund (ETF) on a specific date or time.
- No-Load Fund: A mutual fund in which shares are sold without a commission or sales charge.
o
- Open Interest: The total number of options and/or futures contracts not closed or delivered on a particular day.
- Options Contract: A contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a set price on or before a certain date.
- Overbought: A situation where the price of an asset has risen to such a degree, usually on high volume, that an oscillator has reached its upper bound.
p
- Par Value: A stock’s stated value, as opposed to its market value.
- Portfolio: A range of investments held by a person or organisation.
- Price-to-Earnings Ratio (P/E Ratio): A company’s current share price valuation ratio compared to its per-share earnings.
q
- Quadruple Witching: The simultaneous expiry of stock options, stock index futures, stock index options, and single stock futures, which can lead to increased volatility.
- Quote: The latest price at which a stock or commodity is traded.
r
- Recession: A significant decline in economic activity spread across the economy, lasting over a few months.
- Return on Equity (ROE): A measure of the profitability of a business concerning the equity, calculated by dividing net income by shareholder equity.
s
- Securities: Financial instruments representing an ownership position in a publicly traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.
- Spread: The difference between the bid and the asking price of a security or asset.
- Stop Loss Order: An order placed with a broker to sell a security when it reaches a specific price.
- Swing Trading: A style of trading that attempts to capture gains in a stock within one to four days.
t
- Technical Analysis: A trading discipline employed to evaluate investments and identify trading opportunities by analysing statistical trends gathered from trading activity.
- Ticker Symbol: A unique series of letters assigned to a security for trading purposes.
- Treasury Bonds: Government debt securities issued with more than 10 years of maturity.
- Trailing Stop: A stop-loss order for a long position is set at a percentage level below the market price.
u
- Underlying Asset: The security on which a derivative contract is based.
- Unrealized Gain/Loss: A profit or loss that occurs on paper when the current price of a security is higher/lower than the investor’s cost basis.
- Upside/Downside: The potential for profit or loss from a trade or investment.
v
- Valuation: The process of determining the current worth of an asset or a company.
- Volatility: The rate at which the price of a security increases or decreases for a given set of returns.
- Volume: The number of shares or contracts traded in a security or an entire market during a given period.
w
- Warrant: A derivative that provides the right, but not the obligation, to buy or sell a security — most commonly equity — at a specific price before expiration.
- Wash Sale: A sale of a security (stock, bonds, options) at a loss and repurchase of the same or substantially identical stock soon after.
- Whipsaw: A condition where a security’s price moves in one direction but then quickly pivots to move in the opposite direction.
x
- Xenocurrency: A currency that circulates or trades in markets outside domestic borders.
- X-Efficiency: The degree of efficiency maintained by firms under conditions of imperfect competition, which can impact pricing and production decisions.
y
- Yield: The income return on an investment, such as the interest or dividends from holding a particular security.
- Yield Curve: A graph that shows the relationship between interest rates earned on debt contracts varying in length of their maturity.
- Yield to Maturity (YTM): The total return anticipated on a bond if held until it matures.
z
- Zero-Coupon Bond: A bond that does not pay periodic interest payments and is instead sold at a deep discount from its face value.
- Z-Score: A statistical measurement that describes a value’s relationship to the mean of a group of values, measured in terms of standard deviations from the mean.
- Zig Zag Indicator: A technical indicator used to analyse the movement of securities and is often used to identify price trends.
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