A rating, Moody’s

Aaa, Aa1, Aa2, Aa3, A1, A2, A3

Highest quality, with minimal credit risk.

 

Abenomics

Economic strategy developed by Shinzo Abe, Japan’s Prime Minister from 2006-2007 and again from 2012-2020. He was assassinated in 2022. His economic reforms included monetary and fiscal policies, and structural reforms (increased competition, reformed labour markets, and expanding trade partnerships).

 

Absolute advantage

When a company can use fewer resources (efficiency) to produce the same product as other companies requiring more resources. Popularized by Adam Smith (classic school of economics).

 

Account Balance

The balance of an account (excludes unrealized profits/losses from open positions)

 

Account Equity

The account balance plus the floating profits or losses from open positions.

 

Account currency

The currency in which a trading account is denominated.

 

Account deficit

When the trade balance goes negative.

 

Account statement

A document recording all transactions in a given accounting period, usually annual or monthly.

 

Accounting token

A token that enables users to perform transactions and exchanges between each other. The holder can receive an asset, service or payment from a specific issuer. Transactions are then debited or credited digitally.

 

Accredited investor

A natural or legal person allowed to participate in investing opportunities that smaller investors can’t (bond private placement, crowdfunding, venture capital, real estate syndication, hedge funds and other investments).

 

Accruals

Amounts not yet registered on the financial statements of a company, whether positive or negative.

 

Accumulation

When traders and investors are mass buying a stock (spike in volumes) causing the price to rise, the stock is said to be in the accumulation phase.

 

Accumulation / Distribution Indicator

The A/D (Accumulation/Distribution) Indicator shows the difference between all upward price movements up to a closing point (accumulation), and all downward price movements (distribution) by a closing time, during a specified period of time.

This indicator shows traders if the market is controlled by buyers (accumulation) or sellers (distribution).

 

Acquisition

An accounting transaction where a company buys completely (or a portion) of the shares of another company.

 

Active account

A trading account that conducts transactions within specified intervals. Different institutions may have different time frames for considering an account active.

The opposite of an active account is inactive or dormant.

 

Address (crypto)

Also known as public key (virtual location), it’s a unique sequence of letters and numbers used to receive cryptocurrency. It acts like a bank account number (can be publicised to receive payments), unlike the private key that acts like a password for the user, and signs off the transaction in a wallet.

 

Adjustable Peg

See Peg.

When a country’s exchange rate is “pegged” (fixed) against another currency. The official rate, although fixed may be changed as needed.

 

Advisor

An individual or company employed, either by an individual or a company to provide investment advice.

 

ADR – American Depository Receipt

American Depositary Receipts are shares listed on US stock exchanges, that belong to foreign companies. ADRs give US investors access to foreign company shares, without having to use their exchanges.

 

Aggregate Risk
Total amount of exposure a bank has with a customer for both spot and forward contracts.

 

Alert

A notification of a market event like a margin call, stop-loss, take-profit or a price reaching a target level.

 

Algorithm

A set of defined instructions for making a calculation. They are used in algorithmic trading, to automate decisions.

 

Alligator Indicator

Also known as the William’s Alligator indicator (from its creator Bill Williams), it is a technical indicator that combines moving averages that use fractal geometry and non-linear dynamics to find the beginning of a new trend.

When a new trend is about to begin, the moving averages start to diverge in different directions.

 

Alpha

A measurement of a portfolio’s performance against a benchmark index. A positive alpha indicates that the investor outperformed the benchmark index.

 

Altcoin (crypto)

Any other cryptocurrency besides Bitcoin (alternatives to Bitcoin).

 

American Option
An option that can be exercised, at any time before or on the expiration date.

 

Amortisation

The process of spreading the repayment of a loan, or the cost of an intangible asset, over a specific timeframe.

Amortization is used to decrease the cost of an asset over a period of time. This is different from depreciation that looks to record the value loss of the asset over a period of time.

 

Annual interest rate

See interest rate.

Interest rates are expressed as an annual percentage on an amount, unless otherwise specified. If interest rate on a $1,000 fixed deposit is 2%, the account will receive an annual credit of $20.

 

Anti-money laundering (AML)

Guidelines to detect and prevent individuals / organizations from laundering (cleaning) cash.

 

Antpool

One of the largest Bitcoin mining pools – mining pools combine their computing power to increase the possibility of solving the complex crypto puzzles and get the block rewards.

Appreciation

When an asset’s price increases (irrespective of why), it is known as appreciation. It’s defined as the increase in an asset’s price over time.

To find the percentage appreciation, we would divide the change by the original price and multiply by 100.

Example: If the price of a property increases from $100,000 to $110,000

Appreciation % =  ( 10,000 / 100,000 ) x 100 = 10%

 

API

API stands for Application Programming Interface and it allows developers to synchronize data among multiple platforms, using requests and responses.

 

API gravity

The American Petroleum Institute gravity (API gravity), provides a unit of measurement for crude oil weight, against water.

API gravity greater than 10, is considered light crude and allows the oil to float on water.

API gravity lower than 10, is considered heavier crude and forces the oil to sink.

Any crude oil with API gravity of 40-45, is considered top of the line. An example is the Tapis crude oil in Malaysia, with API gravity of 43-45.

 

Appropriateness Test

One of the steps necessary to gauge if a financial instrument (or broker service) is suitable to a specific client.

 

Arbitrage

Arbitrage occurs when investors buy and sell at the same time in two different markets, to take advantage of discrepancies (differences) in the price.

For example, if an investor buys NVIDIA for $100 on one exchange, and sells it immediately for $102 in another exchange, the practice is defined as arbitrage.

Although arbitrage is legal, there are restrictions in how it can be performed in order to mitigate risks of market manipulation and insider trading.

 

Asian option
An option contract. The exercise price (payout) is based on the difference between the strike price and the average spot rate (based on the average price), over the contract’s period.

Also known as average rate option.

 

Asian session (Forex)

Summer: 11pm – 8am GMT or 7pm – 4am (EDT)

Winter: 6pm – 3am Eastern Standard Time (EST)

 

Ask price

The ask price, is the buying price of an asset. Selecting the ask price, we confirm that we accept the seller’s final price. It is therefore always higher than its counterpart price, the selling price known as Bid.

 

Asset class

This is the category of any given financial instrument. Examples include Stocks, Bonds, Indices, Commodities, ETFs, Mutual Funds, Cryptocurrencies, Real Estate etc.

 

Asset Backed Security (ABS)

A collateralized (backed) security whose value and income payments are based on a specified pool of underlying assets. Think of mortgage-backed securities, aircraft leases, car loans or business loans.

 

Asset Backed Tokens

Tokens backed (collateralized) by a physical asset.

 

Assets Under Management (AUM)

The value of all assets managed by a particular asset manager (whether a natural or legal person).

 

At best

When a dealer is instructed to perform a transaction (both buy and sell) at the best possible price that can be given, at the time of the transaction.

 

At or Better

When a dealer is instructed to perform a transaction (both buy and sell) at the best possible price that can be given, at the time of the transaction.

 

At quote

Receiving a quote for an order directly by the market maker.

 

AUS 200

A stock market index in Australia, that tracks the 200 largest Australian companies listed on the Australian Stock Exchange (by market capitalization).

 

ASX

The Australian Stock Exchange formed in 1987.

Some of the largest companies listed on the ASX include Commonwealth Bank, National Australia Bank, Westpac, Auckland Airport, Amcor, Aristocrat Leisure, Block Inc, BHP, CSL and others.

 

At the money (ATM)

An options contract with a strike price that is identical to the underlying market price.

 

Auction

Competition between buyers and sellers. In an auction market, buyers indicate the maximum price that they are willing to pay for an asset, while sellers indicate the lowest price that they are willing to sell at. Auctions can occur at the opening, closing, or during the day sessions.

 

Aussie

Aussie is another name for the Australian Dollar (AUD). Forex traders use the term Aussie  as a nickname of AUD/USD, one of the major currency pairs.

 

Authorized dealer

An individual or company authorized to deal on specific instruments, by the country’s supervising body, usually a regulator.

 

Authorized participant

A large financial institution, usually a market maker, that is authorized to create and redeem shares as necessary, for the smooth operation of an ETF.

An Authorized Participant is the only investor allowed to interact directly with a fund.

 

Automated Trading System

A system that is programmed to place trades (buy and sell), based on algorithms. This system is mostly used by Hedge Funds and banks. All transactions are conducted automatically, with no human intervention.

 

Average True Range (ATR)

The ATR is a technical indicator that measures price volatility. IT shows the average price variations within a specified time frame. The most used setting is the ATR 14, that takes into account the 14 most recent sessions/periods.

The indicator uses the open-high-low-close range of a day’s trading.

Formula:

Current ATR = (Previous ATR x (n-1) + TR) / n

• If a 14 period is used, then n=14
• TR = ​max [(high − low), absolute(high – closeprev​), absolute(low – closeprev​)

 

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B rating – Moody’s

Baa1, Baa2, Baa3Ba1, Ba2, Ba3, B1, B2 and B3

Considered speculative and subject to high credit risk.

 

Back-end load (mutual funds)

A charge that is deducted only at redemption, and depends on how long the investor held the investment in the fund. There are different percentages for holding the investment for less than a year, and it becomes less the longer it is held. Also known as Contingent Deferred Sales Charge (CDSC).

 

Backwardation

When the current spot price of an asset is higher than the futures price. The opposite is contango.

 

Balance sheet

A summary of a company’s assets, liabilities, and shareholder equity.

 

Bail-in

A bail-in is a form of financial relief to prevent an institution from failing. It is the opposite of bail-out in terms of who pays for this relief. Instead of capital injection, the institution is allowed to cancel any amounts owed to depositors and/or creditors.

The example of the 2013 Cyprus bail-in, required the depositors to take a haircut of their deposits to rescue a failing economy.

 

Bail-out

An individual, business or government capital injection to a systemic business (like the large banks during the 2007 crisis), who’s failure could be detrimental to the economy of the country. The capital injection could be in the form of a loan, cash or other and requires regulation and oversight by the government.

 

Balance of trade

The difference between the value of a country’s exports and the value of a country’s imports over a specified period.

A country is in trade deficit, when it imports more goods and services than it exports.

A country is in trade surplus, when it exports more goods and services than it imports.

 

Balance of payments

All economic transactions between residents of a country and the rest of the world. They are recorded in a current account (trade in goods and services, income and current transfers), a capital account (cross-border flows of transfer payments relating to capital goods) and a financial account (cross-border acquisitions and disposals of financial assets) of a country.

 

Balanced funds

Mutual funds that include both stocks and bonds in their asset portfolio, to balance their risk.

 

Bank for International Settlements

The Bank for International Settlements (BIS) is a global bank established in 1929, and it’s located in Switzerland. It is owned by central banks and its initial purpose, was to account for WW1 reparations.

The bank’s account for Forex transactions, is often used to describe the huge daily turnover of $7.5 trillion.

 

Bank of China

Formed in 1912, the bank of China is a subsidiary of the Chinese central bank, the People’s Bank of China (absorbed in 1971). It is one of the largest banks in the world (by market cap) and is majority owned by the state.

 

Bank of Russia

The Central Bank of the Russian Federation headquartered in Moscow.

 

Bankruptcy

The inability to pay debts on a personal, corporate or country level. Results in liquidation of assets. Being a legal process, it is imposed by a court order.

 

Bar chart

A type of chart which consists of bars depicting the so called (OHLC) prices of a given period. The O stands for the opening price which is marked with a horizontal line to the left of the bar, the H stands for the highest price, the L stands for the lowest price and the C stands for the closing price which is marked with a horizontal line to the right of the bar.

 

Barrier option

A type of exotic option contract. Exotic options are more complex than vanilla options in terms of payoff.

With barrier options, both strike level and barrier level must be breached. The two terms associated with barrier options are:

• Knock in (up, in | down, in)
• Knock out (down, in | down, out)

 

Base currency

For an exchange rate to make sense, two currencies need to be compared and valued. Therefore, the exchange rate has to be expressed in pairs.

The first currency (the one on the left) in a pair, is called the base currency.

In the example of EUR/USD, the EUR is the base currency.

 

Base rate

A central bank charges interest on loans it gives to commercial banks. This interest is called base rate and it affects the interest rates commercial banks give to their customers. Also known as bank rate.

The base rate is used as a tool in monetary policies, that need to bring inflation down or up. By increasing the base rate, credit becomes more expensive, which in turn cools down an economy (and vice versa).

 

Basing

Basing is a chart pattern that indicates equal amounts of supply and demand of the asset. The assets therefore trade sideways and create patterns like the cup (u shape) with a handle (slightly downward slope after the cup).

 

Basis point

One basis point (also known as bp) is equal to one hundredth of one present or 0.01%. It is commonly used to measure changes in interest rates.

For example, if a central bank increases the base rate by 50 bp, it means the rate will increase by 0.50%.

 

BBA Mortgage Approvals

A leading indicator, that shows the sales of new homes in the near future. Released by the British Bankers Association, it is a monthly index that measures how many of the applications for mortgages are approved.

 

Beacon chain (crypto)

Also known as Ethereum 2.0, the Beacon Chain is the Ethereum blockchain that went live in 2020 initiating (phase 0 – The transition from PoW to PoS). ETH 1.0 and ETH 2.0 existed side by side until they merged together in 2022, in a process called “The Merge”.

 

Bear market

When prices drop significantly from their recent highs for a period of time, it is known as a bear market. The general consensus wants the prices to fall by at least 20%, in combination with weak fundamentals and mass sell-offs.

 

Bearer bonds

These are bonds that only exist in physical form. Whoever holds the bearer bonds, is the owner of the asset and can sell them for their value. It’s a rare type of bond nowadays.

 

Bearish

Bearish in trading, is associated with pessimism of falling prices. The market is believed to fall, in a similar context of a bear clawing down on its prey, which is where the term got its definition.

 

Best execution

Most top regulated jurisdictions require firms to take all reasonable steps and precautions, to ensure the best possible result when executing client transactions (also known as best execution policies).

Best execution relates to price, costs, speed, likelihood of execution and settlement, size, nature or other.

 

Bid

The bid price, is the final selling price of an asset. Selecting the bid price, we confirm that we accept the buyer’s final offer. It is therefore always lower than its counterpart price, the buying price known as ask.

 

Bitcoin (crypto)

The first ever cryptocurrency, created by Satoshi Nakamoto bank in 2008. It has a capped supply of 21 million coins and a current market capitalization of over $1 trillion.

Bitcoin set the path towards a decentralized economy, where financials (and other) are managed by the people via an open network called blockchain. The network validates, records and stores transactions without the need of a centralized body like a bank or a government.

 

Bitcoin Improvement Proposal -BIP (crypto)

The standard documentation for any proposed changes to the Bitcoin blockchain. Similar to the Ethereum Improvement Proposal (EIP) standards that propose changes to the Ethereum blockchain.

 

Black box trading

The term used for software that creates buy and sell signals using pre-programmed models.

 

Black Monday

Monday, October 19, 1987. DJIA falls by 508 points with worldwide losses approximately at $1.7 trillion.

Black swan event

An unexpected event (like the pandemic) that can have significant effect on daily lives and finances.

 

Block (crypto)

A founding stone of any blockchain. This is the file that keeps all completed transactions of network participants.

 

Blockchain (crypto)

Blockchain technology uses a distributed ledger to validate transactions, and then store them on a chain of blocks. There are many blockchains that facilitate different operations like smart contracts, decentralized apps and decentralized finance.

 

Blockchain trilemma (crypto)

The three main concerns (decentralization, security and scalability) that blockchain developers struggle with.

 

Blue-chip stocks

These stocks belong to large cap companies (well over the 10 billion market capitalization that large-cap companies should pass), that are nationwide reputable, stable, reliable and with consistent growth and profitability. These companies are dominant in their fields, well established, with large market shares in their industries.

Think of Apple, LVMH, Coca-Cola, Alphabet, Ali Baba, NIKE, American Express and more.

 

BoE

The BoE is an abbreviation of the central bank of the UK, the Bank of England.

 

BoE MPC Vote

Monetary Policy Committee (MPC) is the committee of the Bank of England who meet every month to vote to hike, cut or keep unchanged the official Interest Rates in U.K. It is also responsible for Monetary Policy, Quantitative Easing and any Forward Guidance

The committee consists of nine members including the BoE Governor and is designed to be independent of any political interference.

 

BoC – Bank of Canada

Bank of Canada is Canada’s central Bank headquartered in Ontario.

 

Boiler room

A term used to describe a clandestine operation where salespeople call unsuspecting investors to sell them highly speculative and risky assets.

 

BoJ – Bank of Japan

BoJ is Japan’s Central Bank headquartered in Tokyo.

 

Bollinger bands

Bollinger Bands use standard deviation metrics to measure the volatility of a security. As overlay indicators, they are displayed on the price chart through a 20-day moving average, and 2 bands above and below travelling with a standard deviation value of 2.

The expansions and contractions of the bands can indicate support and resistance areas.

 

Bonds

Bonds give the right to governments, corporations and municipalities to borrow money from institutional and retail investors. Just like with any other debt instrument – like taking out a loan from the bank – there is a fixed interest associated with the borrowed amount called coupon.

 

Book value

A company’s book value is the actual worth of a business when you subtract liabilities and intangible assets (assets with no physical presence like goodwill and copywrite), from the total assets.

An asset’s book value is the cost of the asset minus depreciation / amortization.

 

Book-to-market ratio

The book-to-market ratio compares a company’s book value against its market value. The book value is its total assets minus total liabilities, while the market value is found by its market capitalization (outstanding shares x share price).

Book to market = book value / market value

 

Bottom line

The bottom line is the net income at the end of the income statement after operating expenses, depreciation, interest and taxes. If expressed as Earnings per Share, it’s the bottom-line figure shareholders will make, on every share they own.

 

Brent crude

Brent crude, refers to the crude oil extracted from the Brent oil field in the North Sea. Its characterized as light sweet crude oil and is one of the three oil benchmarks used by traders of oil contracts, futures and derivatives. The other two major benchmarks are West Texas Intermediate (WTI) and Dubai/Oman.

Benchmark prices are needed due to the variety of crude oil grades (see API gravity). Brent has an API gravity of 38 which is considered top of the line.

 

Brexit

‘Brexit’ refers to the British Exit from the European Union. After a referendum in June 2016, Brexit finally occurred at 11pm GMT, on January 31^st, 2020. The UK’s membership in the EU dates back to 1973.

 

BRICS

BRICS is an acronym for the economies of Brazil, Russia, India, China and South Africa. Formed in 2003 by Goldman Sachs, the group was initially named BRIC and it didn’t include South Africa until 2011. South Africa joined, so the group can have a footprint in the African continent.

 

Broker

A broker is a facilitator of transactions between buyers and sellers. It can be an individual or a company, and charges a commission fee for organizing and executing the deals.

 

BUBA

See Bundesbank, the German Federal Bank.

 

Bubble

When asset prices are overvalued, with their price exceeding their intrinsic value (real value based on multiples and fundamentals).

 

Buck

The nickname of the US Dollar. The word’s use traces back to 1748, when buckskins (skins of deer) were traded. There is reference to a cask of whisky traded to Native Americans for 5 bucks. That was 44 years before the first US dollar was minted.

 

Budget Report

Released once a year from the British Treasury Chancellor (Chancellor of Exchequer), and contains details about the economic situation and forecasts, taxation changes, GDP growth estimates, spending and borrowing projections as well as fiscal stimulus for the country.

 

Building Permits

The number of permissions that the government has issued for development of new or existing buildings. Traders and economists look into the Monthly Building Report together with the number of Building permits since they can affect employment and other financial reports.

 

Bull market

When prices rise significantly from their recent lows for a period of time, it is known as a bull market. The general consensus wants the prices to rise by at least 20%, in combination with strong fundamentals and mass purchases.

 

Bulldog bond

When a foreign entity issues bonds in the UK, denominated in GBP to raise funds from the local market, they are called Bulldog bonds (see also Samurai bonds, Yankee bonds).

 

Bullion

A term to describe physical bars, ingots or coins of precious metals (Gold and Silver).

 

Bullish

Bullish in trading, is associated with optimism of rising prices. The market is believed to rise, in a similar context of a bull punching its horns upward, which is where the term got its definition.

 

Bundesbank

The Federal Republic of Germany’s central bank. It was established in 1957.

 

Business Inventories

The value of the inventories held by wholesalers, retailers and manufacturers within a country. When inventories are high, supply is higher than the demand which is a downward push for the economy and the markets.

 

Business confidence index

A leading indicator, that monitors output growth in the industrial sector through surveys that collect opinions from establishment managers regarding the performance of their business. A high reading is seen as positive for the country’s economy.

 

Buy dips

‘Buy the dips’ is a slang phrase used, referring to trading the dip which is identified on a market’s chart, when its price falls after a bullish period.

 

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C rating, Moody’s

Caa1, Caa2, Caa3, Ca, C

Poor standing, subject to very high risk. From Ca and below there is risk for default with some or little prospect of recovery.

 

Cable

The nickname of the GBP/USD currency pair. It received its name from the transatlantic cable that connected New York with London and facilitated faster communications.

 

Calendar spread

Simultaneous long and short positions of the same asset, with different expiration dates. Can be positions on either futures or options contracts.

 

Call option

A call option is a contract that gives the buyer the right but not the obligation (like a futures contract would), to buy an asset at a specific price, with a specified date of expiry.

 

Candlesticks

A candlestick is made out of 4 elements.  The open price, the close price, the high of the period price, and the low price of the period (OHCL).

When these 4 pieces of information come together, candle sticks can form patterns that communicate possible future price moves.

There’s a big difference with simple line charts or bar charts, since they are not able to communicate the same information.

 

Capital expenditure

Capital expenditure (also known as CAPEX) is the term used for the money spent by businesses on physical (tangible) and non-physical (intangible) assets.

 

Capital gains tax

Capital gains tax, is the government tax on any profits, that resulted from the sale of financial assets.

 

Carry trade

The positive return or the negative cost, of holding an asset.

In currency markets, carry trade strategy refers to borrowing a currency with low interest rate (like the Japanese Jen – JPY) and investing in a high yield currency like the USD. The interest rate differential, has a positive effect on the transaction.

 

Cash Account

A cash account allows a trader to open positions only based on the cash amount available in the account. This is different than a margin account, that allows a trader to borrow money against the value of any securities held in the account, and trade with it.

Settlement takes from 1 to 3 days, so a trader has to wait to trade with the cash.

Stocks take 3 days for transactions to settle. Options take 1 day.

 

Cash and carry

Taking a long position on an asset, while shorting at the same time its futures counterpart. The opposite is known as reverse cash and carry.

 

Cash drag

Cash drag is a form of a performance drag (any reduction in the performance of an investment from taxes, costs etc). Cash drag refers to the negative impact that excess cash can have on a company or fund’s financial performance.

 

Cash flow

The amount of cash inflow and outflow from a company’s accounts. A cash flow statement is released with the rest of the financial statements during earnings reports.

 

CBOE

Chicago Board Options Exchange, established by the CBOT in 1973 is now the largest options exchange.

 

CBOT

Chicago Board of Trade, established in 1848 and is one of the oldest futures and options exchanges.

 

Centralized Crypto Exchanges (CEX)

These exchanges are governed by a single entity, they are large, liquid, fast, easy, regulated and versatile. They can exchange fiat currency to crypto and vice versa (unlike DEX) but enforce the use of their wallet and offer fewer trading pairs due to regulation. CEXs are prone to be hacked due to their centralized database.

 

CFTC

Commodities Futures Trading Commission. Created by Congress in 1974 to regulate the US derivatives markets (futures, swaps, and options).

 

Chartist

See also technical analyst. A trader who relies mostly on charts to read historical price movements and use this to better predict and speculate where the price is heading.

 

Chart Time Frames

Charts can display prices in several time frames by minute, hourly, daily, weekly and monthly. Depending on the trading strategy, traders implement their preferred time frames, to help them predict where prices are heading in the near future, based on past performance.

 

Charts

Graphical representations of a security’s price. Prices fluctuate with every second and charts record these changes and present them for a visual look.

Technical analysts use these historical prices on different periods, to apply technical indicators, spot trends, recognize patterns, and find entry/exit points based on their trading strategy.

 

Churning

In trading, when a broker illegally performs excessive trading on a client’s account with a goal to increase their commission is called churning.

In business, churning refers to the client churn. These are clients that stopped using the company’s product or service within a period.

 

Classification of clients (traders)

There are three main categories of clients, retail clients, professionals, and eligible counterparties.

 

Closing price

The last price at which an asset is traded, before the market’s session closes (trading day).

 

CME

Chicago Mercantile Exchange is a global derivatives marketplace founded in 1898. Part of CME Group, a financial services company listed on NASDAQ (Symbol: CME).

CME trades futures and options contracts in interest rates, equities, currencies and commodities.

 

Commission

The charge of a broker for making trades on a trader’s behalf. Although brokers profit from the spread (difference between bid and ask prices), in interbank activities there can be no markup.

It is common practice therefore, for brokers to add commissions on the transactions of their traders, especially in ECN accounts.

Commodity

Commodities are raw materials that are required and valuable to the world’s infrastructure. 8 billion people rely on commodities to cater to their needs whether it’s for food, energy or metals.

A product reaches commodity status, when the end consumer will buy, irrespective of who produced it, since there are minimum differences in the quality of the finished product.

 

Commodity currency

Refers to currencies, who’s prices move together with the prices of commodities.

Countries heavily exporting commodities like Canada, Australia, New Zealand, Norway, South Africa, Brazil, Russia, Chile and others, see their currencies fluctuate a lot when commodity prices move.

 

Communications (stock sector)

This sector includes telecom companies (fixed-line and wireless), media companies that distribute and produce content, companies engaged in advertising, print and digital publishing (newspapers, magazines, books), interactive home entertainment (including mobile gaming apps) and interactive media and services (search-engine and social media).

 

Compound interest

Interest compounded (accumulated) over a principal amount. It refers to the interest earned over the principal amount plus the interest you earn by keeping the money there for longer.

 

Constituents (index)

All members (listed securities) of an index.

 

Consumer discretionary (stock sector)

This is a consumer sector, that groups together companies whose products/services are wanted, but not necessarily needed by consumers. These include (non-exhaustive list) hotels, resorts, advertising, broadcasting, cruise lines, automobile manufacturers, luxury goods and apparel, restaurants etc.

 

Consumer staples (stock sector)

This is a consumer sector, that groups together companies whose products/services are both wanted and needed by consumers. These include retail merchandise, drinks, packaged food and meat, household goods, tobacco etc.

 

Contango

When the current spot price of an asset is lower than the futures price. The opposite is backwardation.

 

Contingent Deferred Sales Charge (CDSC)

A charge that is deducted only at redemption, and depends on how long the investor held the investment in the fund. There are different percentages for holding the investment for less than a year, and it becomes less the longer it is held. Also known as back-end load.

 

Contracts for difference

Contracts for difference (CFDs), are derivative products. A trader, trades the price fluctuations without owning the underlying asset that can be shares, forex, commodities, indices, bonds, ETFs or cryptocurrencies.

CFDs are leveraged products and carry a significant risk of loss. They are more suitable for experienced traders.

 

Convexity

The term is used for bonds. It aims to describe the non-linear (not straight) relationship between the prices of bonds and their yields. It assesses the impact of a rise or fall in interest rates, and what effect it can have on a bond’s price.

 

Cost of carry

The cost of holding an asset, to maintain a position open. This can be rolling fees (overnight funding), interest payments or the storage costs of commodities.

 

Coupon

The annual interest rate of a bond.

 

Covered call

A call option trading strategy. The investor holds a long position on an asset, and sells call options against the same asset (same size with the long position). Although the aim is maximum profitability, it’s still a bet that can go sideways if the stock price falls.

 

Covering

A trader must “cover” a short position to close it. In essence it’s the purchase of stocks to cover the shares borrowed from the broker (see shorting a stock).  The cover can be all at once, or in smaller increments.

 

CPI

Consumer Price Index, is an index that measures changes in prices, of a fixed basket of goods and services that are bought by a typical household in a country.

It is a strong indicator of inflation and commonly used by governments when deciding on monetary and fiscal policies, and tackling with overheating (or overly cooled) economies.

 

Credit default swap

Also known as CDS, it is a financial agreement that enables a lender to ‘swap’ their exposure to risk with another party for a premium.

 

Credit rating

A credit rating is attached to a borrower, and measures the ability (or risk) to meet financial obligations.

Credit ratings are usually provided by three major companies. Standard & Poor’s (S&P), Moody’s Investor Services (Moody’s), and Fitch IBCA (Fitch), although there are others.

 

Credit risk

The risk of payment default from a debtor.

 

Cross currency pairs

Major currencies that trade against each other, and don’t include the USD.

 

Currency correlation

The relationship of two currency pairs. A positive correlation means they move in sync, whereas a negative correlation means they move in opposite directions. A neutral correlation means there is no significant relationship between the two.

 

Currency futures

A contract to buy or sell a currency, at a specific price and date in the future.

 

Currency options

A contract that gives the right (but not the obligation like with a futures contract) to buy or sell a currency, at a specific price and date in the future. The buyer of the option pays a premium to the seller for the option.

 

Cyclical stocks

Stocks that are highly sensitive to economic conditions. These are stocks that rely on the discretion of the consumer since they are not connected with “needed” products and services like food and gas.

 

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Developed markets

A developed market (also known as advanced market) refers to a country that is well developed in terms of its economy and financial markets.

 

Disinflation

A drop of the inflation rate but not below 0%. If it drops below 0% the economy experiences deflation.

 

Dividend

A dividend is the profit that a company distributes to its shareholders, calculated as a proportion of their shares.

 

Dividend adjustment

When a company pays dividends, the outflow of cash decreases the share price, so an adjustment takes place to balance the effect.

 

Dividend declaration date

Declaration date refers to the date that a company declares the next dividend payout.

 

Dividend ex-date

Ex-date or ex-dividend date, is one business day before the record day.

 

Dividend payment date

Payment date, is the day the investors will be paid dividends.

 

Dividend record date

Record date, is the day an investor must be on the company’s books, in order to receive the dividends.

Dividend reinvestment

Reinvesting the dividend payments back into the stock portfolio, instead of cashing it out.

 

Dividend withholding tax

The tax a company must deduct from a dividend payment, and is payable to the government.

 

Doji Candle Sticks: 

A Doji candle is a “strange” candlestick with little to no body. It’s depicted as a cross, rather than a candle. It indicates indecision, when buyers and sellers are in neutral position and there is no dominant side.

Trading the Doji Candle, requires understanding of both support and resistance levels and confirming any signals, using chart patterns and technical indicators.

 

Double Tax Treaty

An agreement between two (or more) countries, to avoid double taxation. Cyprus has double tax treaties with over 60 countries.

 

Drawdown

The decline in either an asset price or a portfolio value, over a specific period. It is calculated by subtracting the lowest from the highest equity amount, within a period.

 

Durable goods

A major indicator of economic activity since industrial production is made by orders. Durable goods are goods that don’t wear out but also goods that take a long time to replace like cars, appliances, furniture etc.

The indicator measures the new orders placed for durable goods and indicates demand/ economic growth (or the opposite).

 

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Earnings per share (EPS)

The value of earnings per outstanding share. EPS is widely followed as it provides an estimated value to a corporation.

EPS = (Net Income – Preferred Dividends*) / Outstanding Shares

*Preferred Dividends = Dividends paid to preferred stock holders (see preferred stock) who receive priority over common stock holders.

 

Earnings seasons

Periods that companies release their quarterly reports. These are middle of January, April, July and October.

 

EBITDA

Invented by billionaire cable TV investor John Malone, an expert in the complications of the US tax code. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It is another way to measure the income of a company.

An EBITDA of over 10% is a good sign. Negative EBITDA indicates very high operating expenses, or a temporary (that could turn permanent) down-slope in its revenues. It calls for evaluating the reasons and the overall health of the organization.

 

ECB

The European Central Bank, established by the Treaty of Amsterdam in 1999 to guarantee price stability in the Eurozone. Its capital stock is owned by all 27 member states.

The ECB gained the status of an EU institution in 2009. There are 7 EU institutions, the EU Parliament, the EU Council (heads of state), the council of the EU (ministers), the EU Commission, the EU Court of Justice, the ECB and the EU Court of Auditors.

 

Economic calendar

A calendar of major economic events, as they are released in real time. It includes the name of the event (see economic indicator), the country it relates to, the time of release, the previous number, the forecast (expectation of the analysts) and the actual (today’s number).

 

Economic indicator

Fundamental data that are used by analysts, traders, and investors to determine investment and trading opportunities. They are meant to describe the health of the overall economy.

 

Economic Sentiment indicator

Measures how optimistic or pessimistic people are in different sectors in the EU. It is created by the European Commission’s Business and Consumer surveys.

Its value is estimated from surveys collected from industries, services, consumers, construction and retail trade, by inquiring about people’s sentiment for the current market conditions and expectations for the future.

It consists of:

• Industrial Confidence Indicator 40%
• Service Confidence Indicator 30%
• Consumer Confidence Indicator 20%
• Construction Confidence Indicator 5%
• Retail Trade Confidence Indicator 5%

 

Electronic Communication Network (ECN)

ECN is a type of NDD (no dealing desk) execution, that allows a trader to place orders through the Interbank Market in a direct, transparent and anonymous way.

ECN accounts don’t charge spreads. Instead, they add commissions to each transaction and they are usually more expensive to open.

 

Elliot Wave theory

Market analysis developed by R.N. Elliot in 1930. The theory states that the market forms the same patters (waves) irrespective of the time frame we analyse (short or long term).

The theory follows the psychology of the masses, that bounce from optimism to pessimism. The theory has two parts. The Motive Wave (subdivided into 5 smaller waves following a larger trend), and the Corrective Wave (subdivided into 3 smaller waves). Motive waves always move with the trend, while corrective waves move against it.

It can be difficult for the untrained eye to spot the patterns.

 

Elliptic curve cryptography

Equilibrium – Price level/range that seems to represent a balance between demand and supply for a given currency pair.

 

Emerging markets

These are economies that show some of the traits/characteristics of developed (advanced) economies, but aren’t quite at the same level yet. The 5 largest emerging markets are Brazil, Russia, India, China and South Africa, also known as BRICS.

Others include South Korea, Mexico, Indonesia, Saudi Arabia, Taiwan and Poland.

 

EMIR

European Market Infrastructure Regulation

 

Engulfing pattern

A candlestick pattern that requires two candlesticks, with the second being significantly larger than its predecessor. It has to be larger, to the point that it “engulfs” or “swamps” completely the previous candle.

A bearish engulfing would have a green candle and an engulfing red candle. The opposite goes for the bullish engulfing.

 

Equity

In trading, equity has the same meaning with shares. If we were to dig a little deeper though, the definitions change depending on the investor. All equity is shares, but not all shares are equity.

Equity owners buy and hold with aim to appreciate the value of the company. Share traders want the same, but aim for shorter frames to make gains.

 

Equity options definition

Options contracts, that give the owner the right (but not the obligation like with a futures contract) to buy or sell a share, at a specified price, within a specified time. Equity options are traded in minimum baskets of 100 shares.

 

ERC20 – Ethereum Request for Comment

A standardized document used to create fungible assets (resembling fiat currency). ERC20 tokens have a fixed supply, and they are transferrable.

EIP – Ethereum Improvement Proposal

The comments of the community. Once received, the developers revise and implement accordingly.

 

EST time

Eastern Standard Time is five hours behind Coordinated Universal Time (UTC) and Greenwich Mean Time (GMT). The EST time is mostly used in North America, Central America, and the Caribbean.

 

ESTX50 – Euro Stoxx 50

A European index, tracking the top 50 companies (by market capitalization) in the Eurozone. It’s weighted based on each company’s free float (not restricted stocks, they are available to trade) market capitalisation.

 

ETC – Exchange Traded Commodity

A type of exchange traded product (ETP), that aims to give investors direct access to commodities. They are open-ended securities (they can be created and redeemed at will) by the issuer and trade on an exchange (same concept with ETFs).

Investors can invest in ETC products that target single commodities (like gold or oil). Or they can invest in ETC products that track broader indices (like energy, livestock etc).

 

Ethereum

The second largest cryptocurrency by market capitalization. Ethereum is a blockchain, that enables the creation of dapps (decentralized apps) and smart contracts (programs that run on the Ethereum blockchain).

Many known tokens (Tether, USDC, Polygon, Uniswap, ShibaInu) utilized the Ethereum blockchain and its ERC20 protocol to build their functionalities. Some stayed on the Ethereum blockchain, while others created their own blockchain platforms (like Binance and Tron).

 

ETF – Exchange Traded Fund

A type of exchange traded product (ETP), an ETF is a fund that is traded on an exchange. Unlike a closed-end mutual fund that is also traded on an exchange, ETF shares can be created and redeemed at will.

ETFs are baskets of financial instruments that sometimes track a benchmark index or, specific groups of assets. These are bundled together under one share that gets listed on an exchange and traded during trading hours. They are subject to management fees and expenses.

ETP – Exchange Traded Products

Financial instruments that are traded throughout the day on exchanges. A non-exhaustive list of ETPs includes ET Funds, ET Notes, ET Commodities, ET Derivatives, ET Instruments

 

EUA (EU Emission Allowance)

An allowance to emit one tonne of carbon dioxide equivalent within a specified period. They can be bought/sold on the market. The variable market price of EUAs, reflects the cost of reducing emissions.

 

EURIBOR

An interest rate benchmark for the eurozone. It’s an abbreviation for Euro Interbank Offered Rate. It is calculated using the average rates that eurozone banks offer each other on uncollateralized short-term loans (less than a year), of various maturities (ranging from 1 week to a year).

It is used in financial products like interest rate swaps, interest rate futures, saving accounts and mortgages.

 

Euro

The Euro was launched in 1999 to provide a single currency to EU member states. 11 members replaced their national currencies initially including Belgium, Finland, France, Germany, Spain, Italy, Portugal, Luxembourg, Austria, Ireland and the Netherlands forming the Eurozone. Today 20 out of the 27 member states of the EU adopted the Euro.

It is divided in 100 cents, with banknotes of 5, 10, 20, 50, 100, 200 and 500. It is the most traded currency after the USD.

 

Euro Short-Term Rate (ESTR) definition

The interest rate benchmark (the overnight borrowing cost) of banks within the eurozone. The rate is calculated and published by the European Central Bank (see ECB).

 

Eurobond

The term has nothing to do with the Euro currency. It is a term associated with external bonds. These are international bonds, that are issued in a currency different than the issuing country’s currency.

They are categorized according to the currency they are issued in. Eurodollar are bonds denominated in USD. Euroyen are bonds denominated in JPY. If Italy issues a bond denominated in USD, the bond will be referred to as Eurodollar bond.

 

Eurodollar

These are US dollars held in banks outside of the United States. Post WW2, the European market was the biggest exporter to the US and amounted huge amounts of USD. The term Eurodollar referred to those amounts, but was later applied to any USD held by a bank outside of the US.

 

Eurogroup

The EU member states that adopted the Euro as their currency (20 members of the Eurozone), hold informal meetings through their finance ministers and are known as the Eurogroup.

 

Euroclear

Founded in 1968 by JP Morgan to support the Eurobond market at the time, Euroclear is a major clearing house that specializes in clearing, settlement, safekeeping and servicing of securities (equity, bond, ETF, and mutual funds).

 

European Options

Options contracts that can be exercised only on the expiration date. The abbreviation symbol for a call option of this type is CE and for a put option PE.

 

European Union

A supranational (has the power to exercise functions that otherwise were belonged to its states) union, comprised of 27 European member states, 450 million people and a GDP of $18 trillion (2023).

It was established in 1993, when the Maastricht Treaty came into force.

 

European Monetary Union (EMU)

Established in 1992 by the Treaty of Maastricht but entered into force in 1993 to merge a number of economic policies that tackled with inflation rate, public finances, interest rates and exchange rate stability in the European Union.

 

European session (forex)

The most volatile of all three sessions (Tokyo, London and New York), and works from 2:30 am – 10:30 pm EST. Very active session when it overlaps with the other two.

 

Evening Star

A candlestick pattern that appears at the end of an uptrend. It involves a bullish green candle, a small bodies candle (like a Doji), and a bearish red candle.

The bearish reversal is confirmed when the price closes below the three candlesticks.

 

Ex-dividend

Ex-dividend or “without dividend”, referring to the sale of a security after a dividend payment is announced but before it gets distributed. Ex-dividend sits between the record and the payment date.

 

Exchange

An organised marketplace for securities like stocks, commodities, derivatives and other financial instruments.

 

Exchange Rate

The price of one currency in relation to another.

 

Execution

Execution in trading, is the completion of a buy or sell order from a trader. It is carried out by a broker.

 

Execution only service

Investment firms can offer a multitude of services. Execution only means the brokerage is limited to only execute client transactions and excludes services like investment advice.

 

Exotic (options)

Option contracts that have variations on their payouts, strike prices and expiration dates. Examples include binary and barrier options.

 

Exotic (currency pairs)

Exotic pairs usually involve major pairs trading against a less popular currency like the South African Rand, the Mexican Peso, the Czech Koruna, the Hong Kong Dollar, the Chinese Yuan and many others. Less popular currencies trading against each other are also considered exotic, they are very volatile and they have really wide spreads

 

Expiry date

The date a trading position is expires, it automatically by the system of the broker (also known as expiration date).

 

Exponential Moving Average

EMA uses the same mathematical equation as a simple moving average to find the average of closing prices, but it doesn’t give equal weight to all prices in the session. Instead, it gives more weight to more recent prices and less weight to older ones. It does that by adding a multiplier to each price that decreases as the price gets older.

 

Exports

Goods and services produced in one country and sent to another. Exports together with their counterpart (imports) define international trade.

 

Exposure

The amount invested in a particular asset. In a broader view, it is the amount invested in a portfolio. In either case, the exposure represents the loss an investor could incur on an investment.

 

Extrinsic value (options trading)

The difference between the market price of an option contract (the premium) and its intrinsic value.

*Intrinsic value = Price at expiration – Current price (in essence, the value of the option if the holder exercised it today)

Extrinsic = Premium – Intrinsic

 

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Factory orders indicator

Measures the dollar value of goods from factories. The data is released monthly by the US Census Bureau and are split in two categories: durable and non-durable goods. The reports include all new orders, unfilled orders, shipments, as well as inventories.

 

Fair value

The fair price of an asset after evaluating its books, its earnings or other analysis that was conducted in an objective and unbiased manner.

 

FCA – Financial Conduct Authority

The supervising body responsible of the oversight of investment firms, as well as the financial markets in general, in the UK.

 

Federal Reserve – the Fed

Established in 1913, the United States central bank is in charge of maintaining monetary and financial stability. Under the Federal Reserve act, congress gave the Federal Reserve bank 3 objectives:

1. Maintain price stability
2. Maximize employment
3. Moderate long-term interest rates

 

Federal Reserve system

The system that governs the Federal Reserve functions. It is comprised by the Federal Board of Governors, the 12 Federal Reserve Banks (New York, Philadelphia, Boston, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, Minneapolis and San Francisco) and the FOMC committee.

All together they are responsible for the nation’s monetary policy, the stability of the financial system, the regulation of financial institutions, the safety of the payment/settlement system and consumer protection.

 

Fiat currency

A fiat currency is any currency not pegged to a commodity (like gold and silver). All currencies today are fiat, and they’ve been so since the end of the Bretton Woods agreement in 1971, when president Nixon ended the convertibility of the USD to gold.

 

Fibonacci retracement

The Fibonacci retracement is a technical analysis tool that identifies areas of support and resistance, indicating a potential reversal. It works well when the market is in a trend.

The trader uses two extreme points on a chart, and divides the vertical distance by Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, 76.4%). Horizontal lines are placed at each point but they should be read with caution and not advice ( preferably as areas of interest).

 

Fibonacci sequence

The Fibonacci sequence, are numbers starting from 0, and where every number is the sum of the two previous numbers. For example 0,1,1,2,3,5,8,13,21,34,55,89,144,….

 

Fill (order)

When an order to trade is executed by the broker in full. Partial fill occurs when a portion of the order is executed at the requested price, and the remaining at the next available price.

 

Fill or kill order (FOK)

An instruction sent to a broker or a trading venue that must be executed immediately and in full (not partial). If either of the two rules are not met, the order is cancelled.

 

Financial instrument

An asset that holds capital and can be traded between two parties. Assets can be shares, currencies, commodities, derivatives, indices, interest rates, swaps etc.

 

Financial market

A term used interchangeably with “exchange”, a financial market is a place where financial instruments are being traded between parties. A financial market acts as a facilitator between those in need of capital, and those with capital to invest.

 

Fit and proper

This refers to people who effectively direct an investment firm. Brokerages (especially regulated ones) are complex structures and require extensive experience to ensure the sound management of all terminals.

Also related to the fit and proper test, that aims to exclude people of bad repute (or corrupt) from running such delicate operations. The test assesses experience, reputation, conflicts of interest and independence of mind, time commitment, collective suitability.

 

Fiscal policy

One of the two main policies a government uses to stimulate their economy (the other one being monetary policy). Fiscal policy deals with the collection of revenue (through taxes) and the use of this revenue through government expenditure to promote sustainable growth.

This is evident in the GDP calculation | GDP = C (private consumption) + I (private investment) + G (government purchases) + NX (net exports). Governments affect economic activity by directly controlling G and by indirectly influencing C, I, and NX indirectly, through changes in taxes, transfers, and spending.

Fixed costs

These are expenses that a business incurs and remain fixed (at least until the end of a contractual agreement – if any). They remain unchanged, unlike variable costs (commissions, production etc) and have no direct effect to production. Examples include rent, insurance, salaries, utilities etc.

 

Fixed exchange rates

A rate that is pegged against the value of another currency, or a basket of other currencies. Some pegged examples include UAE’s dirham, Qatari Riyal, Jordanian Dinar, Bahamian Dollar that are all pegged to the US dollar.

 

Floating exchange rate

A currency where the price is determined by the market (supply, demand, economy). Most currencies are floating, and they have been since President Nixon abandoned the Bretton Woods agreement in 1971.

 

FOMC

The Federal Open Market Committee (a branch of the Federal Reserve that meets 8 times a year) responsible for reviewing and overseeing open market operations in the US. OMOs are the buy and sell of securities to tighten or loosen the money supply in the economy. Using OMOs, the FOMC can indirectly affect the federal funds rate.

 

Forex

Foreign Exchange is a decentralized market with a daily turnover of over $6,5 trillion. Using this market, investors can convert one currency to another either to cover day-to-day needs, or to trade the fluctuations of the prices.

 

Fork (crypto)

The split of a blockchain due to disagreement on proposed changes (full consensus is required). See soft fork and hard fork.

 

Forward contract

A contract that obliges its holder to buy or sell an asset, at a specified price at a future date. It has the same characteristics as a futures contract, but it is an over-the-counter traded derivative. This means that it is not standardized, not traded or settled on an exchange, and is subject to credit risk (one party defaulting on the obligation).

 

Fractional shares

Like their name implies, these are fractions (portions) of a full share.

 

Free reserves

Reserves held by a bank, after deducting the reserve requirement ration imposed by the central bank.

 

Front-end load (mutual funds)

Un upfront charge, cut off directly from the invested amount. A front-end load of $50 on a $1,000 investment, would cut $50 and put the remaining $950 in the fund.

 

FTSE

Financial Times Stock Exchange. The FTSE indices are owned by FTSE Russell, which is part of the London Stock Exchange Group. The FTSE 100 is their most well-known index, made up of the largest 100 companies trading on the London Stock Exchange.

 

Full replication

Full replication ETFs refers hold assets in all of the constituents of the benchmark they are tracking. They also hold them in same weighing proportions.

 

Fundamental analysis

The study of financial and economic indicators, both at a company as well as overall economy level. These indicators and financial statements are released to show the health of organizations and economies from various angles.

 

Fundamental indicators

Data relating to the supply and demand of goods and services in the real economy. They are used in fundamental analysis.

 

Funding charges

Funding charges, or overnight charges, are the fees on leveraged positions that are held open overnight.

 

Funds (investment funds)

A pool of money, collected and made available for the purpose of investments. There are different types of funds like mutual funds, hedge funds, alternative investment funds, exchange traded funds etc. They each have their own mandate and are regulated as such.

 

Futures contract

A contract that obliges its holder to buy or sell an asset, at a specified price at a future date. It has the same characteristics as a forward contract, but it is an exchange traded derivative. This means that it is standardized, traded and settled on an exchange, and is subject to less credit risk than its counterpart.

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G7

France, Germany, Italy, Japan, the United Kingdom, Canada, and the United States.

 

G8

The G7 group added Russia in 1997 and became G8. After Russia’s annexation of Crimea in 2014, it was expelled from the group, which returned to its previous status of G7.

 

G20

Argentina, Brazil, Mexico, United States, Canada, United Kingdom, the EU, France, Germany, , Italy, , Russia, Saudi Arabia, South Africa, Australia, China, India, Indonesia, Japan, Republic of Korea and Türkiye.

 

GAAP

Generally Accepted Accounting Principles. Fundamental accounting principles that are standardized for financial reporting.

 

Gamma (options)

Gamma is one of the 5 Greeks, which are tools used to measure factors, that could affect the price of an option’s contract.

Gamma represents the rate of change in the option’s delta (see delta). Think of Gamma as the Delta of the Delta.

Gamma = Delta1 – Delta2 / Underlying Price1 – Price2

 

Gap

When the price of a security jumps to a new price not directly next to the previous price, creating a gap between ticks on a chart. It can be due to outside normal hours trading, which isn’t directly reflected on the chart.

 

GDP

The Gross Domestic Product of a country represents the total value of the goods and services produced, over a specified period. Increases in yearly GDP, indicate a strong economy, whereas 2 consecutive quarters of negative growth, may indicate recession.

 

Gearing ratio

Debt Vs Equity and other metrics. A measure used to estimate a company’s financial leverage. It sheds light to the financial risk the company is exposed to, through its borrowing to fund operations.

 

Gilt

The government bond of the UK. Gilts are issued by the Debt Management Office (DMO) on behalf of the Treasury. The are called gilts, due to the gilt-edge the paper securities had.

 

GMT

Greenwich Mean Time. Earth has been divided into twenty-four equal time zones, making it simple to convert GMT to local time. Cyprus is GMT +2 hours.

 

GNP

Gross National Product is the total output of an economy within a specified period. The main difference with GDP, is that GDP is measures only domestic output, whereas GNP also measure output from citizens living outside the country.

Gold bullion

Physical gold (at least 99.5% purity), casted in bars, ingots, or coins.

 

Gold certificate

A certificate of ownership of gold. They are still issued today by German and Swiss banks as well as in Australia and the US. They are easier to transfer, store and trade than the actual metal itself.

 

Gold contract

The standard unit of trading gold is one contract, equal to 10 troy ounces.

 

Gold ounce

1 Ounce = 31.10 grams or 0.031 Kg

 

Good-till-cancelled order

An order that will stay true until cancelled by the trader.

 

Greeks

Measures of sensitivity of option prices (premiums) to changes of the underlying assets. They are known as Greeks, because they are represented by Greek letters. These are the Delta (option price vs underlying price), Gamma (Delta vs underlying price), Vega (option price vs volatility), Theta (option price vs time to maturity), Rho (option price vs interest rate).

 

Greenback

A term describing the US dollar. It was called greenback because the back of the notes was green. The term was popularized during Lincoln’s administration.

 

Grey market

Also referred to as parallel market or dark market. When the price of a good is higher in one country than it is in another, the sale of the good takes a parallel road through the dark market. The products are traded outside the manufacturer’s distribution channel.

 

Gross profit margin

Profit after subtracting the costs of selling goods and services. A profit margin of 50-70% is considered good.

Gross profit = Revenue – COGS (Cost of Goods and Services) / Revenue

 

Growth Stock

The stock of a company expected to grow faster than the average growth of the total stock market. Growth stocks are preferred by short term investors and traders due to their target of outperforming the market, rather than wait on value. They are characterized by higher growth rate and no dividend payouts.

 

Guaranteed stop

A type of stop-loss, that has a guarantee to be executed at its exact level.

 

Gunning

Traders that “gun” for known stops or technical levels in the market. Also known as gunning for stops strategy.

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Hammer Candle

Forms at the bottom of a down trend and looks like a hammer. A small body at the top, and a long wick (line) at the bottom. The hammer shows that even though the price dropped, it bounced back up fast.

 

Handle

If a stock price is $100.35, the handle is the 100. It is the whole number (that actually matters and seen in news/analysis) and is responsible for market sentiment. Most investors would refer to this stock as if its trading at $100.

Its different with forex, because the handle needs more information to be considered accurate. A currency pair quoted at 1.2830, would have a handle the 1.28.

 

Hard fork

Blockchain splits in two and creates a new cryptocurrency. Code is changed so much that it is different than the original (example Bitcoin and Bitcoin Cash).

 

Hawks and doves

Hawks and doves are terms used by the trading world to refer to any Central Bank comments and views on rises or drops of interest rates. Hawkish would mean a rise, where dovish would mean a drop.

 

Hedge

A hedge is a strategy that aims to minimize (or cancel) a trade’s risk exposure. A hedging strategy could mean opening the opposite trade of a transaction, using assets to reduce current exposures (like buying gold during economic downturns, or inflation adjusted bonds in times of high inflation) or using hedging trading strategies (use of derivatives, or opening multiple positions at the same time.

In the business world, a broker offsets (hedges) a portion/or all the volume of the client transactions with the clearing houses, to hedge the risk.

Heikin Ashi

Heikin Ashi refer to a chart type similar to candlesticks. They are not as accurate as candlesticks because they don’t display the opening/closing prices of a period. Instead, they only show the average data of the period.

This being said, professional traders still use them to find trends and reversals. They are more commonly seen in short-term trading strategies.

 

Helicopter money

New money, fresh of the press. A sovereign nation that has a central bank and is able to print their own banknotes, is only limited by inflation (or worse hyperinflation), to print more money.

In times of recessions (like the 2008 Great Recession), in times of needed stimuli (like the pandemic package relief programs), or in times of debt repayment (when raising revenue from taxes is not enough), governments print and distribute new money to the public, much like a helicopter drops supplies from above.

 

High Frequency Trading (HFT)

Using programs, algorithms and mathematical formulas, HFT is a type of trading that processes large numbers of transactions in extremely fast intervals. HFT requires high speed connections, and is designed to get the best possible price either in large orders or many small ones.

 

Hit the bid

A trader/investor that accepts the current price and is willing to sell immediately, at the given bid price, will informally ‘hit the bid.’

 

HK50

The Hong Kong Hang Seng index, listing the 50 largest companies listed on the Hong Kong exchange (Tencent holdings, HSBC, China mobile etc).

 

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IBEX 35

Iberia Index launched in 1992 – The Stock index of Spain, with the 35 strongest companies in Spain. Constituents include Santanter Bank, BBVA, Telefonica, Naturgy Energy Group and others.

 

IBOR – Interbank Offered Rate

An average interest rate benchmark, of the rates that banks charge each other for loans (of various maturities). See EURIBOR, LIBOR, TIBOR. Over-the-counter (OTC) derivatives, have been using IBORs for a long time.

 

Ichimoku Cloud

A support/resistance technical analysis indicator. In combination with other indicators it can show a clear picture of the trend and define support/resistance (with a moving average), it can confirm the trend with overbought / oversold signals (with an RSI).

Traders confirm their signals with confidence when they see a bearish red or green bullish cloud.

 

IDR

The currency symbol of Indonesian Rupiah, the currency of Indonesia.

 

Illiquid

Lack of liquidity (volume) in a market. Defined by difficulty to find a counterparty (to buy or sell your asset), widened spreads, choppy market conditions, slippage, gaps and sudden spikes.

 

Immediate or cancel order (IOC)

An order that has to be executed immediately and in full. If not in full (partial), it must be cancelled.

 

Implied volatility

A measurement of the volatility (uncertainty) of an asset, using the current price of an option. If the option premium rises, without a rise in the underlying, there is implied volatility.

 

Improper disclosure

When an insider discloses inside information to someone else.

 

In the money

When an option’s underlying asset price hits the strike price and gives the option an intrinsic value above $0.

 

Income distribution

When income from assets (like dividends or coupons) are redistributed to investors.

 

Income fund

A fund that invests in a diversified portfolio of stocks with relatively high dividend payments or interest-paying assets like bonds.

 

Income statement

A financial statement recording the sales and expenses of a company over a given period. It normally includes revenue, cost of sales, sales, general and administrative expenses, other operating expenses, non-operating income and expenses, gains and losses, non-recurring items, net income; and EPS

 

Index

An Index is a basket of stocks, that represent a consolidated view of a larger picture. When a group of stocks is bundled together and averaged to a single value, we get a performance indicator of what the group represents. Representation could be of a specific sector, a country or a broader regional area.

 

Index components

The single members (securities, derivatives) of an index. Microsoft is a component of the Nasdaq stock index. They are also known as constituents of the index.

 

Index option

An option with an index as the underlying asset. Indices popular with options include SPX (S&P 500), OEX (S&P 100), VIX (CBOE Volatility), NDX (Nasdaq 100), IWB (iShares Russell 1000) and others trading on the CBOE (see CBOE).

 

Indication of Interest (IOI)

When a buyer discloses a wish to purchase an instrument (usually prior to an IPO). No obligation to finalize is legally binding from an IOI.

 

Indices trading

Index values represent all the constituent’s prices and cannot be traded directly (it would be impossible to own all the underlying assets in an index). Indices can be traded through funds that mirror a benchmark index or derivative products. The fluctuating value of an Index can either be bought at spot or with an expiry date sometime into the future.

 

Industrial production

A metric of the industrial sector of an economy, over a specific period. The industrial sector includes manufacturing, construction, mining, utilities etc.

 

Inflation

The price increase of goods and services in an economy, within a given period. It’s not as bad as it sounds because a normal level of inflation (2% is the target set by central banks around the world) can support the health of an economy.

Complications start when higher or lower levels of inflation than the target of 2% occur. When inflation falls below 0%, it is called deflation, and it can be as bad as inflation.

 

Inflation risk

The risk that inflation will reduce the real value of cash flows derived from an investment. Also known as purchasing power risk.

Information asymmetry

When one party in a transaction has better information than the other party, resulting in an advantageous position.

 

Information Technology sector (stocks)

This sector includes everything involving the creation of IT products and services. These include research and development (R&D), manufacturing, distribution, upgrades, and maintenance.

The US IT sector has over 780 listed stocks, a market capitalization of $17 trillion and it includes names like Microsoft, Apple, AMD, Salesforce, Orace and others.

 

Initial margin requirement

The amount required (locked) to open a transaction. Unlike cash accounts, margin accounts require a collateral (margin) which is a percentage of the overall transaction.

A 10% margin requirement, on a $1,000, would require a collateral (margin) of $100 to be locked to open.

 

INR

The currency symbol for Indian Rupee.

 

Insider trading

When an insider trades (or attempts to trade), based on insider information. The famous case of Martha Steward selling hes shares in Im Clone Systems after learning that a new drug was rejected by the FDA. Another case was with Ivan Boesky, who was convicted for insider trading and paid $100 million in fines.

 

Interbank rates

The interest rate charged between banks for forex transactions.

 

Interest

The charge imposed for borrowing money. Depending on which side you’re at, you can be making interest (profiting), or paying interest (losing). It is calculated by percentages of the principal called rates.

 

Interest rate

See interest. The percentage calculation of the charge imposed for borrowing money. The payments can be annual (annual percentage rate – APR), semi annual or quarterly.

 

Interest rate swap

An agreement to exchange interest payments. Interest rate swaps are usually conducted by corporations, investors or banks on one side, and a bank (commercial or investment) on the other side.

 

Internal rate of return – IRR

This is how companies measure the return on potential investments. It is based on predicted cashflows. If for example the IRR on an investment is 10%, it means that it would pay 10% annually throughout its duration.

 

Intermediate

An individual or corporation who brings together two other firms or persons to conduct a deal.

 

Intervention

Refers to centra banks intervening to appreciate or depreciate the value of their currency (usually to boost exports – think of the Bank of Japan).

 

Intrinsic value

Any asset that has a value on its own (without waiting time), is said to have intrinsic value. An option contract that is in-the-money, if exercised today, it will have an intrinsic value (positive return), in contrast with an out-of-the money option, that has no intrinsic value..

In general terms, the intrinsic value of a business or any investment asset is considered to be the present value of all future cash flows discounted at an appropriate discount rate.

 

Inverted hammer (candle)

The opposite of a hammer candlestick (see hammer)

 

Investment grade

Bonds are rated based on their inherent risk. Government bonds are always highly rated (due to their low risk), whereas municipal and corporate can have lower ratings.

Low risk (of default) bonds are rated as Investment Grade. High risk bonds, are rated as high-yield or junk.

 

IPO – Initial Public Offering

When a company launches a stock offering to the public (retail / institutional investors) and lists its stock on an exchange. Also known as ‘going public’.

The aim of an IPO is to raise funds for future company developments, products and expansion. An investment bank is hired (very expensive) to underwrite (register and distribute) the new shares.

 

ISM manufacturing index– Institute for Supply Management

Formerly known as the Purchasing Managers Index. A survey of over 300 purchasing managers and supply management executives. It can affect investor and business confidence so it can have a big market effect. The index gives equal weight to production, employment, supplier deliveries, new orders, and inventories.

 

ISM non-manufacturing index – Institute for Supply Management

Formerly known as the Non-manufacturing NMI). A survey of 400 purchasing and supply managers in non-manufacturing (services) firms. The index is used to assess the performance of US services companies. A reading above 50% is considered a good sign (unlike a reading below 50% – expansion can also occur with lower rates like over 40%, as long as they are consecutive).

 

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JMD

The currency symbol of the Jamaican Dollar. IT used to be pegged to the USD but not anymore.

 

JPY

The currency symbol of the Japanese Yen, the currency of Japan.

 

JOD

The currency symbol of Jordanian Dinar, the currency of Jordan.

 

January effect

There is a consensus that security prices rise In January (more than any other month). The reasoning is attributed to investors buying back stocks after the December taxation (when they sold to pay off their taxes). Another reasoning is January bonuses that spill over onto securities for investment purposes.

 

Jobbers

One that jobs. Stockjobbers buy and sell securities on own account, profiting from spreads. In merchandizing, a jobber can be a wholesaler, a distributor or an intermediary. Other uses include jobbing house, land jobber, fuel jobber and others.

Joint account

A bank account owned and shared by two or more people.

 

JOLTS

Job Openings and Labor Turnover Survey produces data on job openings, hires and separations. That is how many jobs were opened, how many workers got hired and how many parted ways with their jobs for one reason or another.

 

Junk bond

There are two types of bond ratings and they relate to the risk of default. One is investment grade (see investment grade) and the other is high-yield (pays high yields because its risky), which is also known as junk bond.

 

Jurisdiction

The power, right, or authority, to interpret and enforce the law. IT could be one authority over another (one having jurisdiction over the other), or referring to a place that regulates (supervises) a specific function.

Jurisdictions in FX, are places with significant importance to investors, as they supervise, control and maintain the compliance rules and regulations.

 

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Kazakhstan Stock Exchange (KASE)

The official stock exchange of Kazakhstan, founded in 1993 and located in Almaty (the largest city in Kazakhstan). The exchange was trading currencies in its early years, since the formation of Kazakhstan’s currency, the tenge. It wasn’t until 1997 that the exchange was trading listed and unlisted shares.

 

Kappa (options)

Another name for Vega, one of the 5 Greeks measuring possible changes of option contracts. Kappa measures how much the premium of an option with change, with a 1% change in implied volatility (with all other variables remaining constant like interest rate, expiration date, underlying asset price).

 

Key Information Document

With a maximum of 3 pages of content, KIDs must provide clear information of all investment products that an investment firm offers. They include best- and worst-case scenarios, and translated in all languages of the countries that the investment firm offers its products.

 

Key Performance Indicators

Metrics identified by a company as determinants of success or failure.

 

Kitchen sink bonds

A term used to refer to bonds that package “hard to sell” collateralized mortgage obligations (CMOs). CMOs are types of mortgage-backed securities, the main reason behind the Great Recession of 2008.

 

Kiwi (forex)

The nickname given to the New Zealand Dollar (NZD), due to the Kiwi bird on the$1 coin.

 

KNF – Komisja Nadzoru Finansowego

The Polish Financial Supervision Authority.

Knock-in option

An option contract that is activated only when the predetermined price (barrier price) is reached. If the price is not reached, there is no contract. Caution must be exercised since the barrier price must be reached before expiry, which might never happen. There are 2 types:

• Down-and-in knock-in option, is activated when the underlying asset’s price falls below the barrier price
• Up-and-in knock-in option, is activated when the underlying asset’s price rises above the barrier price

 

Knock-out options

An option contract that is active but expires when the underlying asset’s price rises or falls below a specified level (the barrier price). There are 2 types:

• Down-and-out option, is active until the asset falls below (or at) the barrier price.
• Up-and-out option, is active until the asset rises above (or at) the barrier price.

 

KuCoin

A centralized cryptocurrency exchange (see CEX) launched in 2017, headquartered in Seychelles, with offices in Hong Kong and Singapore, with over $4 billion in assets and supporting over 700 cryptocurrencies.

 

KYC – Know Your Client

Guideline and regulation standards, aiming to verify client details. These standards require investment firms to request personal and financial information to assess the suitability and risk profiles of their customers. Basic requirements include passports/IDs, utility bills and bank statements.

The higher the risk profile of the country of origin (where the client is from), the more documentation might be required to complete the profile.

 

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Large cap

A categorization of companies based on their size. The size of each company is measured by its market capitalization (outstanding shares available for trades multiplied by the current share price). Large-cap stocks have a market capitalisation of over $10 billion.

 

Last dealing day

The last day an investor can trade a specific instrument.

Last trading day

One day before the expiration of a contract (derivatives).

 

Latency

The delay of data transfer. In trading, when executing many trades very fast (like with HFT), ultra-low latency is of paramount importance.

 

Leading indicators

Economic data that can help investors predict future events in the markets. They cannot be used as a stand-alone reason for positions and they vary in their accuracy.

Examples of fundamental leading indicators are CCI, PMI, while technical leading indicators include RSI and stochastic oscillators.

 

LEAPS (options)

Abbreviation for Long-term Equity Anticipation Securities. Options that expire in longer time frames than traditional options (2 or 3 years).

 

Leg

Refers to one part of many in a trading strategy. To reach a goal, a strategy might require multiple transactions (legs).

Similarly, while trading Swaps, there are 2 legs in the transaction. The leg with the fixed interest payments, and the leg with the variable.

 

Legal person

A person (entity), that although not a natural person, has rights and responsibilities. It can be controlled by natural persons or other legal persons. Its subject to private and public law.

 

Level

A specific price level that is significant to investors and traders from a technical point of view. Support and Resistance points are examples of such levels.

 

Level 2

Provides a deeper look into the available prices of bid and ask. When available by the broker, other than the available prices listed, Level 2 shows the number of shares for each order, and the financial institution (or ECN) that is routing the orders.

 

Leverage

Leverage is the multiplier number that allows a trader / investor to enter the market with a larger investment. A leverage of 1:100, means that the amount at risk (margin) is $1, but the position amounts (and has a profit/loss effect) of $100.

Leveraged products carry a significant risk of loss and are suitable to more experienced investors.

 

Leveraged ETFs definition

A type of exchange traded funds (ETFs) that target multiplied (leveraged) returns. If the Nasdaq 100 increases by 5% in a session, a 2x NSDQ ETF will target an increase of 10%.

 

Leveraged products

Financial instruments that allow bigger exposures without additional investments required (see leverage).

 

Liabilities

Debts and/or obligations from one party to another (whether a company or individual).

Limit order

An order that will automatically be executed by the system (broker) when its level is reached.

 

Line charts

The simplest type of charting system since it’s only a line, that connects the different price levels.

Practically unusable compared to other chart types like candlesticks, but very helpful when analysing divergences and looking for narrow swings.

 

Liquidation

In trading, liquidation means the exit of a trade and its exchange into cash (either for the trader if in a profit or for the broker if in a loss).

In business, when a company stops operations and closes down, it goes into liquidation. Any assets are used for outstanding obligations to creditors and shareholders (if there’s anything left) depending on the priority their shares give them (see common and preferred stocks).

 

Liquidity

A term that describes how easily a quote can get filled. Since every buyer needs to be matched with a seller at a given price (and vice versa), a market needs more buyers and sellers to be liquid.

An illiquid market makes it harder to fill orders, allowing for slippage, partial fills and rejections.

 

Lit market

When orders are displayed on order books. The opposite is dark market (see dark pools).

 

Loads (Mutual Funds)

The sales charges of Mutual Funds, which are passed onto investors as front-end and/or back-end loads, and they go to brokerage houses for selling the fund.

 

London Interbank Offered Rate (LIBOR)

The London Interbank Offered Rate, is a globally used benchmark for interest rates on short term loans and other instruments.

Since June 30, 2023 it has been replaced by the Secured Overnight Funding Rate (SOFR). The European Short-Term Rate (ESTR) is also in use.

 

London session

Also known as the European session—is one of three trading sessions. It opens a 7:30 am and closes at 3:30 pm GMT. The last four hours of the London session are highly active because of its overlap with the New York session.

 

Long butterfly spread

An options strategy, used when a trader thinks that the underlying price will remain within a tight range.

For example, a trader can buy one low-strike call, sell 2 high-strike calls, and buy 1 even higher-strike call, all with the same expiration date.

 

Long position

When a trader buys an asset, with the intention to sell it at a higher price for profit. Also known as “going long”.

 

Loonie (Canadian currency)

The nickname for the Canadian Dollar (CAD), the seventh most traded currency. Introduced in 1987, depicting a loon (bird that is found throughout Canada). Since Loonie is 1 CAD, a Toonie represents the 2 CAD, even though there is no bird but a polar bear.

 

Lot definition

A standardized unit of asset measurement, that varies across assets. A lot in Forex refers to 100,000 units of the base currency, with gold trading it is 100 ounces, while with stocks its 100 shares.

 

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M&A

Mergers and acquisitions. The process by which two or more companies consolidate (combine) into one, through financial transactions.

 

M0 money supply

The first of four legs (M0, M1, M2, M3) of the money aggregates, that comprise the total money supply in the United States. M0 includes all the physical money in circulation, notes, coins and bank reserves.

 

M1 money supply

The second of four legs (M0, M1, M2, M3) of the money aggregates, that comprise the total money supply in the United States. M1 includes all the physical money in circulation (M0) plus all checkable/demand deposits (accounts that can be withdrawn anytime with no notice). Also known as narrow money.

 

M2 money supply

The third of four legs (M0, M1, M2, M3) of the money aggregates, that comprise the total money supply in the United States. M3 includes M2 plus marketable securities and less liquid accounts, time deposits in amounts less than $100,000 and balances in retain money market funds (MMFs).

 

M3 money supply

The fourth of four legs (M0, M1, M2, M3) of the money aggregates, that comprise the total money supply in the United States. M3 includes M2 plus large and long term deposits, MMF balances and debt securities that mature up to 2 years, repurchase and agreements. Also known as broad money

 

Money supply

Money is used in every economic transaction. Money supply therefore must be carefully measured in order to maintain economic stability. Too little supply can choke an economy whereas too much can render money useless. Money circulates in the form of physical currency and a variety of types of bank deposits. The way money supply is measured includes a narrow view, a broader view and an even broader one (M3).

 

Maintenance margin

The amount required to keep a margin transaction open.

 

Margin

The amount required (collateral) to open an account in a margin account. Margin accounts use leverage to multiply the margin for larger positions.

 

Margin call

A percentage of the margin (can be different across brokers), that the trade triggers an alert for additional funds in order to maintain the position. If no additional funds are added, and no further action is taken, the possibility of an automatic close is high.

 

Mark to market (MTM)

Investors must constantly know if a company’s asset value dropped or increased at any given time. In the past, an asset’s value was kept on the books at its original price level. MTM is an accounting method (also called fair value), that values an asset or a portfolio, or account at today’s market price, rather than an estimated book value.

 

Market contagion

The value decline of a market due to the value decline of another (no matter the cause). A different concept to market correlations, since it only relates to decline in values.

 

Market capitalisation

Also known as market cap, it’s the total market value of a company. It is measured by multiplying a company’s outstanding shares (all shares available for trade) by its current (today’s price). At the time of writing this definition, from the 100 largest companies in the world, Microsoft comes 1^st with $2.95 trillion and Charles Schwab is the 100^th with $137.6 billion.

 

Market data

All trade and investing related data. Asset news, prices, analysis, technical and fundamental news across all countries and instruments.

 

Market intervention

When a government intervenes in an attempt to adjust the market through the tightening or easing of the economy. The two main policies used for intervention are monetary and fiscal policies. The intervention themselves are known as Quantitative Easing (QE) and Quantitative Tightening (QT).

 

Market maker

An institution that trades on own account. In Cyprus, the regulated investment service associated with market making is “dealing on own account”. It involves creating liquidity for brokers and traders by participating in transactions (being the other side of a trade) at all times.

When dealing with market makers, unregulated activity can be dangerous. Regulated market making though is highly competitive in order to acquire market share, which in turn pushes for innovation, stellar technology and fast execution for investors.

Market order

An instruction to execute a trade immediately (unlike limit orders), and at the best available price.

 

Market value

A company’s monetary value based on metrics like assets minus liabilities, price to earnings, return on equity etc. Market value is a very sensitive metric and can be affected by politics (if income is related to country policies), geopolitics (if related with international trade), regulations, saturation, and other factors.

 

Merger

When two (or more) companies become one. Different than an acquisition where one company takes ownership of another.

 

MetaTrader

An e-trading platform developed by Metaquotes. The most popular products of Metaquotes include MT4 and MT5 (detailed run through of differences between known platforms on our platform page).

 

Maturity Date

The date that a debt instrument such as a T-bill, a note, a bond, a draft, becomes due. Also known as the expiry date of a derivative contract.

 

Mid cap

A categorization of companies based on their size. The size of each company is measured by its market capitalization (outstanding shares available for trades multiplied by the current share price). Mid-cap stocks have a market capitalisation between $2 and $10 billion.

 

MOM

Month-over-month is the change in the numbers of an indicator, relative to the prior month’s numbers.

 

Momentum trading

A trading strategy that seeks to profit on the rate at which a security’s price accelerates (up or down).

 

Money

From the word “moneta” that means coin in Latin. Anything that can be used/accepted to transact and declared as legal tender within the borders of the country that it is used. Must meet the four properties of money which include it being a medium of exchange, a unit of account, a standard of value accepted to settle a debt, and a store of value.

Money also needs to meet the characteristics of durability, portability, divisibility, uniformity, limited supply, and acceptability.

 

Moving average

A technical indicator, as simple as averaging two (and more) numbers using the formula (a+b)/2 and creating a moving/running line of points. Traders use different periods of moving averages to trade like the 5-8-13 SMA and the 13-26 SMA. They also combine moving averages with other indicators, like Bollinger bands and RSI.

 

Moving average convergence/divergence (MACD)

A technical analysis indicator that aims to identify changes in a share price’s momentum, direction and strength. The line of the MACD is created using two exponential moving averages (see EMA), a short-term (12-day EMA) and a long-term (26-day EMA). The difference between these two is what creates the MACD line.

MACD line = 12day EMA – 26day EMA

A signal line is then used, to signal entry and exit times, when it crosses from above or below the MACD line. The signal line is a 9-day EMA of the MACD itself.

When the 9-day EMA of MACD crosses the MACD line from above it signals an uptrend. When it crosses it from below, it signals a downtrend.

 

Multilateral Trading Facility (MTF)

An alternative to traditional exchanges. They match buyers and sellers automatically using a multilateral system where multiple parties can interact. MTF users are not defined as clients but as members in MiFID and these are most likely professionals and/or eligible counterparties.

 

Multiplier (futures)

The number used to find the notional (speculative) value of a futures contract. In indices, the multipliers vary depending on the index. To find the notional value, you multiply the current price with the multiplier.

When the S&P 500 was created, it had a $500 multiplier and a ticker value of $50 (ticker size x multiplier). As equities increased in value, the multiplier was split to $250 in 1997. Dow Jones has a multiplier of $10, Nasdaq of $100 and Russel 2000 a multiplier of 500. All there mini and micro contracts have smaller multipliers accordingly.

 

Mutual fund

A pool of money, collected and made available for the purpose of investments by a portfolio manager. Mutual funds can be open-ended, closed-ended or UITS. They can be categorized according to their structure, their investment strategies, their active or passive approach, the type of securities they trade in, the fund allocation, their risk appetite and more.

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NAFTA

North America Free Trade Agreement is a free trade agreement that removed tariffs on most goods produced and traded by Canada, Mexico and the US. It was signed in 1992 and came into effect in 1994.

 

NAIRU

Non-Accelerating Inflation Rate of Unemployment. Relates to the relationship between unemployment and inflation. This is the level of unemployment, at which prices are expected to start rising.

 

Narrow money

See M1

 

National Bureau of Economic Research

Responsible for identifying the beginning and end of US recessions. It’s a non-profit and non-partisan organization of economic research.

 

National debt

The amount that a nation’s government owes to anybody, including its own citizens.

 

Natural person

Any physical person (living human being) that has rights and responsibilities derived from legal systems that govern a country.

 

Near money

These are financial assets with many of the properties of money, but not all. Savings deposits and foreign currency deposits although very liquid, they cannot be used directly for transactions.

 

Nearshoring

Used together with reshoring or onshoring, relates to actions taken to move any offshored activities closer to home.

 

Negative balance protection

It’s a process that began from forex regulators and spilled over into most brokerages (to maintain a competitive edge) that protects losing trades (positions) from pushing the balance of an account into negative territory.

 

Negative growth

A decline in size (of a company, industry, country or region), over a specified time period.

 

Net asset value (NAV)

An accurate representation of a fund’s value. To find the NAV, we remove liabilities from assets, and divide the amount by the outstanding shares (units) of the fund.

 

Net change

The difference between the closing price of a trading session, compared to the closing price of the previous session.

 

Net imports

Imports minus exports

 

Net income

The last amount of net profit recorded in the financial statements of a company, within a specified period.

 

Net position

The difference of all open transactions in a profit and all open transactions in a loss, resulting in a net positive or net negative position.

 

Net present value (NPV)

A metric that aims to define if an investment will be profitable over a period of time. Takes the sum of all future cash flows (over the expected lifetime of the investment) and discounts them to today’s value (present value).

Net worth

The total value of an individual (or company’s) assets after deducting any liabilities.

 

New Development Bank (NDB)

The multilateral development bank established by the BRICS members to sponsor sustainable projects and initiatives in emerging markets and developing countries.

 

New York session

One of the three trading sessions that opens at 8:00 AM ET and closes at 5:00 PM ET. Typically, the first 45 minutes of the session are characterized by high volatility.

 

Nixon shock

Policies initiated by president Nixon in the 70s. These included a freeze on wages and prices, import surcharges and the famous decoupling of the US dollar from gold, ending the gold standard and allowing the USD to free float against other currencies.

 

Node (crypto)

A device that takes part in a network of validators and miners to validate transactions on a blockchain. A node maintains an updated copy of the blockchain at all times.

 

Noice traders

Traders who are poorly informed.

 

Nominal (in economics)

The current price of anything that has financial value. Today’s hypothetical asset value, will be based on current economic reasons. The same hypothetical asset, would have a different value today if we took last year’s economic reasons into consideration. It’s important because inflation today might exacerbate a price and cause it to vary significantly from its real value (its relative price over time).

 

Nominee

An individual or business that manages assets or conducts transactions on behalf of another individual or business (the owners).

 

Non-farm payrolls (NFP)

A report released monthly, and reveals the state of employment (80% of the workforce that contributes to the GDP) in the US. The report doesn’t include farm employees, private household employees, unpaid volunteers, proprietors and the unincorporated self-employed persons.

The reasons that farm payrolls are excluded is because of farming seasonality, the complex structure of the agricultural industry, the characteristics of the workers and the number of undocumented workers. Instead, these are tracked by the U.S. Department of Agriculture.

 

Non-fungible Tokens (NFT)

A digital security/token (stored on a blockchain) that cannot be exchanged with units of the same. To explain non-fungibility better with a real-life example consider an art painting, which although valuable, cannot be broken into smaller measurable pieces that reflect the total value. A bar of gold though, can be measured and valued the same, depending on its weight making it fungible, just like physical coins and notes.

NFT can be any digital file like artwork, photos and videos. Anyone can create a digital asset and own the original file. Others can copy the asset but only one can own the real thing. Its recorded on a blockchain, and can be sold and transferred. The trading volume of NFT in 2021 spiked to $17 billion, after a few high-profile auctions.

 

Non-governmental organization (NGO)

Social and political organizations that operate independently from governments. Some of the biggest NGOs in the world include Save the Children (1919), Oxfam International (1942), Doctors Without Borders (1971), BRAC (1972), World Vision (1950) and many others.

 

Nonce

A random number created only once, specifically for the cryptographic communication, to ensure that older communications cannot be reused.

 

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Open-Ended Investment Company (OEIC)

A type of a UK pooled investment fund and managed by professional fund managers. Mutual funds are open-end investment companies.

 

Off exchange or off book

The process of trading shares over the counter and outside an exchange.

 

Offset

Transactions that offset (cancel) some or all of the risk of other transactions.

 

On exchange

When an asset is traded on an exchange. The opposite is off-exchange.

 

On-balance volume (OBV)

Technical indicator used by traders that speculate based on an asset’s previous trading volume.

 

One cancels the other (OCO)

Involves the placement of two orders (usually in opposite directions), and the automatic cancellation of one, if the other executes.

 

Ongoing Charges Figure (OCF)

Covers the day-to-day costs of running a fund like management, registration, custody and distribution fees.

 

Opaque market

See dark pool

 

OPEC

The Organization of the Petroleum Exporting Countries, established in Iraq (in 1960) by Saudi Arabia, Venezuela, Iraq, Iran and Kuwait. In 2019 OPEC grew with Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and the Republic of the Congo.

OPEC plus

Responding to falling oi prices, OPEC signed agreements with 10 more countries in 2016 known as OPEC plus. The countries are Russia, Mexico, Kazakhstan, Oman, Azerbaijan, Malaysia, Bahrain, South Sudan, Brunei and Sudan.

Open interest

The amount of open derivative contracts that have not yet been settled. Traders use it to analyze sentiment, since it varies day-on-day. Its an absolute number, that increases per contract opened (with money flowing into the market) and decreases per contract closed (money flowing out of the market).

Open positions

An open transaction or trade.

 

Option

A financial instrument, part of the derivatives instruments, that gives its holder the right (but not the obligation like a futures contract) – to buy or sell an asset, when the asset price moves beyond a certain price (known as the strike price) and within a specified time (expiration date).

As a derivative contract, it derives its price from an underlying asset, and trades without owning the underlying.

 

Options spread

These are strategies used to mitigate risk exposure. The three types of options spread strategies are vertical, horizontal and diagonal.

 

Order

A request by a trader to a broker, to execute a trade (by price and volume) on a financial instrument.

 

Order book

A list of transactions (held mostly electronically), displayed by volume and price levels. These orders can be market, limit or stop orders. They can also be of other types like all-or-none (AON), fill-or-kill (FOK) and immediate-or-cancel (IOC)

 

Organized Trading Facility (OTF)

A system operated by a market operator that operate trading facilities like the ones on traditional regulated markets/exchanges (but is not a regulated market or an MTF). Examples would include broker crossing systems and inter-dealer broker systems bringing together third-party interests and orders by way of voice and/or hybrid voice/electronic execution. An OTF has discretion in execution, but cannot deal on own account.

 

Over the Counter (OTC)

An off-exchange transaction between two parties. OTC carries risks (like credit risk) since its settled outside the standard rules of an exchange.

 

Overexposure

When a trader takes on too much risk. Overexposure can be detrimental for an account, since it has majority (if not all) the investment in a single position.

 

Out of the money

An option contract that has not reached the strike price and is in danger of expiring worthless. Other terms include at the money and in the money.

 

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Parent company

Controls (or majority controls) another company (the subsidiary). For example, Alphabet Inc is the parent company of Google LLC.

 

Parity         

When two things/variables/instruments have equal value. In the context of forex trading, parity refers to two currencies being exchanged 1 for 1.

 

Partial fill

When a portion of a order gets filled (executed). Very common when using limit orders.

 

Passive management

A type of investment where portfolios don’t try to outperform the markets (like with active investing). This is a long-term strategy (also known as buy and hold), and in many cases it mirrors a benchmark index and generates long term returns. Passive investments can be through mutual funds and ETFs.

 

Patterns

Distinctive formations recorded on charts. Patterns are the founding stone of technical analysis and are used in combination with technical indicators to speculate on future price moves. Distinct patterns can be seen through chart patterns and candlestick patterns.

 

Percentage in Point (pip)

Unit of measurement of a forex transaction. If the currency pair is quoted in 4 decimals – like the EUR/USD – the 4^th decimal (or 0.0001) is the pip. If quoted in 2 decimals – like the USD/JPY – the pip is the 2^nd decimal or 0.01.

Not to be confused with a pipette which is the 5^th decimal or 3^rd decimal in the above examples respectively (see pipette)

 

Petrodollar

USD reserves derived from the sale of oil. Oil exporting countries get paid in USD since it’s internationally recognized as the reserve currency of the world. The petrodollar was an arrangement between Saudi and the US (back in 1974), where the US promised to provide economic and military support to Saudi in exchange for all oil sales to be conducted in USD. The rest of the OPEC countries followed suit by 1975.

 

Physical replication

When an exchange traded fund (ETF) holds the entire (or a portion of) the constituents of a benchmark index. The aim is to replicate as accurately as possible the index. An example is Vanguard S&P 500 UCITS ETF (USD). The replication is mentioned in the risk details of the ETF. The opposite is a synthetic replication.

 

Pip

See percentage in point

 

Pipette

Unit of measurement of a forex transaction. If the currency pair is quoted in 5 decimals (instead of 4) – like the EUR/USD – the 5^th decimal (or 0.00001) is the pipette. If quoted in 3 decimals (instead of 2) – like the USD/JPY – the pipette is the 3^rd decimal or 0.001.

Not to be confused with a pip which is the 4^th decimal or 2^nd decimal in the above examples respectively (see percentage in point or pip)

 

Placing

The process of underwriting and selling shares to a group of investors.

 

Portfolio

A pool of assets either invested by an individual or a portfolio manager through a fund. Assets can include stocks, bonds, currencies, commodities, ETFs, indices, cryptocurrencies, derivatives.

 

Portfolio risk

The inherent risk of investing, where the portfolio fails to meet its objectives or fails all together. Every investment carries a significant risk of loss and no one should invest more than they can afford to (potentially) lose.

 

Position

When traders commit to a transaction (either buy or sell), they are said to have positioned themselves in the market. The position can remain open (open position) until the trader decides to close it (closed position) in which case, a profit or a loss will be incurred.

 

Post market

After a market closes. Referencing activity (or other) after a market closes in any session around the world.

 

Power of attorney

A legal document that grants another person (natural or legal) the right to act on someone else’s behalf. A requirement in many jurisdictions when trading in an account is conducted by a person other than its owner.

 

Pre-market

Before a market closes. Referencing activity (or other) before a market closes in any session around the world.

 

Preference shares

One of two types of stocks (Common and Preferred), that combine characteristics of ordinary shares and fixed income. Also known as preferred shares, they are given priority for dividend payment and asset distribution in case of liquidation (if available).

The 4 types of preference shares are callable, cumulative, convertible and participatory.

 

Premium (option)

The cost of a call or put option contract.

Price discovery

The mechanism of price formation, based on buyers and sellers agreeing on prices for transactions (supply and demand).

 

Price to Earnings (P/E ratio)

Metric of the value of a company.

P/E = Share price / Earnings per share

If share price is $10 and EPS is $1, then the P/E is $10.

 

Primary market

The market where new issuance (and sale) of securities takes place. The opposite is a secondary market.

 

Prime rate

The interest rate US banks charge their top customers.

 

Principal

A dealer who buys/sells securities for own account trading.

 

Producer Price Index (PPI)

An index that tracks the average change of prices (received by domestic producers of goods and services. Unlike the CPI which measures from the perspective of the consumer, the PPI measures from the perspective of the seller.

 

Professional client (under MiFID 2)

A client who has the experience, knowledge and expertise to make investment decisions and properly assess the risks associated with the investment.

 

Profit

The revenue earned from a transaction (after expenses). Profit can be measured in terms of gross profit, operating profit and net profit. In trading, closing a transaction in a profit would mean buying low/selling high and vice versa.

 

Profit and loss statement

This is the income statement of a company that includes sales revenue, expenses and profit (or loss). The two methods of calculating P&L is a single step method, and the multistep method

General single step method | P or L = Revenue – Expenses

 

Profit take

A type of stop order that realizes the profits of a position automatically. Can also relate to the manual closing of a position to realize gains.

 

Proof of Stake (crypto)

A method used for validating transaction on a blockchain. It requires stakes (collateral, amount of native coins) deposited with the network, and instead of miners (that mine new coins), it uses validators. The higher the stake, the more chances to become a validator, and through algorithmic activity to secure fair play, validators are chosen. Once 2/3 of nodes validate a block, its added to the blockchain. Validators stand to lose more than they gain (their stake) if they become bad actors, so the network is secure.

 

Proof of Work (crypto)

The earliest method of validating transactions on a blockchain. It requires proof, that a computational effort/work (the solving of cryptographic equations) was used. It requires high powered CPUs, so the bigger the equipment the better the chances of solving the puzzles first, in which case new coins will be generated (mined) and paid as a reward to the “miner”.

 

Proprietary trading

An account funded by a brokerage, but managed by traders after they pass an evaluation process. A demo account is used during the evaluation, to showcase the skill of the trader through consistent profitability and proper risk management. If the challenges (as set by the brokerage) are passed, a contractual agreement outlining the terms sets out the relationship (profit share, trading capital and guidelines).

 

Prospectus

A document outlining the details of a security to the public (potential buyers) like description of the company’s business, what its offering, risk factors, terms, leal and regulatory information, governance, fees (and other information as required).

 

Pullback

A temporary price reversal or correction of a trend. It can be identified using indicators like moving averages, Fibonacci retracements or trend lines.

 

Pump and dump

The increase of an asset’s price (“pump”) through the spread of false, misleading and exaggerated information. Once the price reaches a desired level, the brokerage house responsible for raising the price (also known as boiler rooms) “dumps” the asset, to profit from the difference (wolf of wall street).

 

Purchasing Managers Index (PMI)

A fundamental indicator tracking monthly reports and surveys from manufacturing firms and in a number of categories like new orders, inventories, and production. A PMI above 50 would indicate expansion of the manufacturing sector and vice versa.

 

Put (option)

An option contract that gives the buyer the right but not the obligation (unlike a futures contract) to sell an asset at a specific price, at a specific date of expiry.

 

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QQQ

The Invesco QQQ ETF, that tracks the Nasdaq 100 index. As of the writing of this definition, QQQ has $256 billion AUM.

 

Quant

A quantitative analyst develops complex models using math (calculus, differential, integral), finance, probability & statistics, programming – for firms to use in investments and finance.

 

Quantitative easing (QE)

A government’s monetary policy that aims to increase the money supply in an economy. The policy looks into making money affordable and easier to get by lowering the interest rates.

 

Quantitative tightening (QT)

A government’s monetary policy that aims to decrease the money supply in an economy. Also known as shrinking the economy. The policy looks into making money expensive and hard to get by increasing the interest rates.

 

Quasi-public corporation

A private corporation that is backed by the government.

Quasi-government bonds

Bonds that are not issued by a government, but receive full backing by a government. Examples of quasi-government bonds in the US include Fannie May and Freddie Mac. Hydro-Quebec in Canada is another example.

 

Quick ratio

Measures how liquid a firm is. A 1:1 ratio, or anything above 1, means the company has more liquid assets than liabilities and can pay off its debts many times over.

Quick ratio = (current assets – inventory) / current liabilities.

 

Quorum

The minimum number of people that must be present in a board meeting, for a decision to be considered valid.

 

Quota

An official limitation on the quantity of anything. In international trade, it’s a limitation/restriction by a government on imports and exports.

 

Quote currency

For an exchange rate to make sense, two currencies need to be compared and valued. Therefore, the exchange rate has to be expressed in pairs.

The second currency (the one on the right) in a pair, is called the quote currency.

In the example of EUR/USD, the USD is the quote currency. This means that every 1 EUR is worth the EUR/USD rate, that is quoted in USD.

 

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Rally

A period when asset prices increase by 10-20%.

 

Range (price)

The distance between the highest and lowest price, within a period.

 

Rate (forex)

The price of one currency against another.

 

Rate of return (RoR)

The profit or loss on an investment, incurred over a period.

 

Ratio spread (options)

A neutral options trading strategy. It involves the simultaneous buy and sell of a number of options, and its expressed as a ratio. If 2 are bought and 1 is sold, the ratio is 2:1. If 2 are bought and 4 are sold, the ratio is 2:4.

 

Raw material

Material used in the production of another product. Commodities are raw materials produced, grown, or extracted naturally.

 

Real Estate

Land and property

 

Real Estate Investment Trust (REIT)

A company/group that owns portfolios of income-producing real estate, across a range of property sectors. All REIT companies are registered with the Securities Commission of their country. They can be listed on exchanges and trading through a single stock, or not. The two main types of REITs are Equity and Mortgage. REITs moved from the Financials sector into the newly formed Real Estate sector in 2016.

 

Recession

The part of the economic cycle that follows the peak. Recession is at play when two consecutive negative quarters of GDP are recorded, although this definition is not technically correct. A more severe and prolonged recession can push an economy into a depression, with a decline in GDP of over 10%.

 

Redemption (ETF)

When the holder of an ETF redeems (cashes out) the security from the ETF issuer. The same definition applies for an open-end mutual fund.

 

Redemption yield

The total return from an investment in bonds. Referring to the Yield-to-maturity of the bond

 

Regulated market (RM)

A traditional stock exchange like the NYSE or LSE is an example of a regulated market. A multilateral system that facilitates transactions in financial instruments, in a way that results in a contract between buyers and sellers.

 

Regulation (markets)

A set of laws and directives, that aim to protect investor’s interests. Regulated investment firms from top tier supervising authority bodies like CFTC, ASIC, FCA, CySEC and other EU regulators, are subjected to rigorous and complex reporting, to ensure they remain compliant.

Tier 2 regulators include offshore regulators with more lenient rules. Unregulated investment firms run with no supervision and therefore caution must be exercised, if dealing with them becomes an option.

 

Relative Strength Index (RSI)

A technical indicator that measures the speed and change of price movements. The most common use of the indicator is to identify overbought and oversold securities as well as trend reversals.

Relative volume (RVOL)

A technical indicator that shows how much volume an asset currently has, compared to its average volume in the same period.

 

Repurchase agreement (repo)

When a borrower sells securities (fixed income), but commits to repurchase them sometime in the future. The buyer is known to be conducting a reverse repo (buys with the intention to sell).

Reserve currency

A currency recognized for international transactions (accepted by other countries for payments)  and held by central banks to facilitate these payments. The USD has been the reserve currency of the world for almost a century. The USD succeeded the British Pound. Reserve currencies relate to the current superpower of the time (Dutch, Portuguese, Spanish etc), since they do the most international transactions during their time in power.

 

Reserve requirement

The amount required by banks to hold in liquid state. It’s as a percentage of the total deposits held by the bank.

 

Reserves

The actual definition means to hold back or keep back. Financially speaking, liquid assets are kept back (outside spending and investing) by an individual, a corporation or a central bank.

 

Resistance level

The highest level in a range, that resists buying pressure. The opposite is a support level.

 

Return on Equity (ROE)

A metric of a company’s profitability in relation to its equity.

ROE = Net Income / Shareholder’s Equity

 

Revaluation

When a government takes action to increase the exchange rate of its country. The opposite is devaluation.

 

Reversal

A correction (or permanent) turn of a trend.

 

Retail investor (MiFID 2)

A client (trader) that is not a professional client or an eligible counterparty.

 

Retail sales

A monthly report from the United States Census Bureau, that includes all the sales of goods/services over a period. Since retail sales account for 70% of GDP in the US, it is a measure of confidence, sentiment, and demand. It is used as a leading indicator to speculate on price moves.

 

Rho

One of the five Greeks that measure the sensitivity of option prices (premiums), relative to other variables. The variable of Rho is interest rates.

 

Risk management

Refers to the managing of risks in an investment portfolio. The world of investments is packed with risks from liquidity, to counterparty, to default, to credit, to price spikes and more. Steps must be taken to mitigate these risks even though complete elimination is impossible. The first step is always education.

 

Risks (investing)

Risk is anything that can work against a trader’s possibility for profit (see risk management).

 

Retail Price Index (RPI)

Another metric of inflation.

 

Rollover (swap fee)

The charge (or payment) incurred for the rolling of an open position, over to the next day.

Rollover rate = (Interest rate of Currency A – Interest rate of Currency B) / 365 * exchange rate

 

Route

The connection between traders and the market they get their pricing from. A broker offers this route, and it can either be directed to another market (LP, pool of LPs, ECN, interbank), or it can stay with the broker who acts as a market maker.

 

RSI formula = 100 – (100 / 1 + RS)

*RS is average gains during upward periods divided by average gains during downward periods

 

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Samurai bond

When a foreign entity in Japan, issues bonds denominated in Japanese Yen to raise funds from the local market, they are known as Samurai bonds.

 

Sanction

An administrative (or criminal) penalty, to officially punish any natural or legal person, that disobeys the law. Sanctions are commonly used in the international arena by those in power to enforce them, so that the “world order” can remain stable. They can include embargos, the freezing of assets, the prohibition of sales or purchases of goods, blacklisting and more.

 

Satoshi (crypto)

Like cents for Bitcoin. The smallest divisible number that Bitcoin can be broken to. One bitcoin contains 100 million satoshis or sats (0.0000001 of a bitcoin)

 

Scalp

Refers to the scalping trading strategy, that aims to open and close multiple positions fast, to take advantage of small price movements.

 

Scandies

A group nickname of the Scandinavian currencies of Norway, Sweden and Denmark. Scandies include the Norwegian Krone (NOK), the Swedish Krona (SEK) and the Danish Krone (DKK).

 

SEC

The US Securities and Exchange Commission.

 

Secondary market

The trade of financial instruments on an exchange, after their auction and direct sale in the primary markets.

 

Secondary sector

The second of three macro sectors defined in macroeconomics that deals with the process and manufacturing of finished products, after the raw materials have been extracted (primary sector).

 

Sectors

Sectors are segments of an economy (or market), that group together companies with similar products, services and characteristics. The two standards that segment companies into sectors are the GICS and the ICB. The GICS groups them into sectors where ICB into industries, but they mean the same thing.

 

Secured Overnight Financing Rate (SOFR)

The cost of borrowing cash overnight, collateralized by US Treasuries. SOFR is calculated on the basis of the repo market (instead of expert opinion like the LIBOR) and uses Tri-party repo data, GCF repo data, and bilateral Treasury repo data making it less susceptible to manipulation.

 

Securities

Financial instruments, contracts that hold value.

 

Securities lending

Lending securities (shares, commodities, derivatives) either internally or to another financial institution, usually for the purposes of short selling. The owner of the security lends them to a party who will borrow them to short for profit.

 

Security token (crypto)

Traditional securities in digital form.

 

Series (options)

A bundle of options with the same underlying asset, the same strike price and same expiration date.

 

Sharding (crypto)

When a large database is broken into smaller segments to improve scalability and efficiency in the network.

 

Share buyback

When a company buys back the shares it sold to investors. Shares are issued to raise capital, but they also dilute the ownership of the company. When possible, share buyback returns ownership back to the company, who then adds the stocks to its treasury so they are not available for trading any more (until further notice).

 

Share price

The cost to buy one (or benefit from selling) a share in a company. Historical prices are past prices of the stock, whereas the current price is the cost of buying it (or benefit of selling it) today.

 

Shares

Shares represent ownership of a company, in proportion to the number of shares held. If a company issues 100 shares, 1 share would represent 1% ownership of the company that can issue 2 types of shares (common and preferred). Stock issuance aims to raise capital and distributes profit through dividends.

 

Shares trading

The process of buying and selling shares. There are over 55,000 listed companies worldwide, with the New York Stock Exchange (NYSE) being the largest organised marketplace for trading shares in the world.

 

Sharia

Requirements set out by the Sharia law that governs Islamic life, finances and investments. An example is the prohibition of riba (interest paid for loans). It also prohibits any form of speculation and gambling.

 

Short selling

With the expectation of a price drop, a short seller borrows a security from a broker, in order to sell it immediately. If the price drops, the trader will buy it back at a lower price, thus profiting from the difference. If the price doesn’t drop, the trader will have to buy it back at a higher price, resulting in a loss.

 

Short ETF

A type of exchange traded fund which trades against a benchmark index. Also known as inverse ETF.

 

Shortfall risk

The probability of falling short of initial projections, relative to an investment. Another way of saying, the risk of being wrong.

 

Slippage

When the execution of a price order is different than what was expected when it was placed.

 

Smart contract (crypto)

Computer programs that target the automatic execution of specific functions. Popularized via the Ethereum blockchain.

 

Smart order router (SOR)

An automated process that looks for the best opportunity from multiple connected trading venues.

 

SNB

The Swiss National Bank, the central bank of Switzerland Swiss National Bank.

 

Socially responsible investing

A careful selection of assets on the basis of their impact on society. Part of the ESG investing standards which aim to create a sustainable and impactful investing world, where the environment, society and how companies are governed, are given substantial weight.

 

Soft fork (crypto)

A type of fork that doesn’t split the blockchain in two (like a hard fork does). It’s a software upgrade to the existing blockchain (for example the implementation of the Segregated Witness (SegWit) on the Bitcoin network (increased the block size limit).

 

Sovereign (bonds)

Refers to government bonds of sovereign nations.

Special Drawing Right (SDR)

A reserve asset created to be exchanged with other reserve assets of member countries at times of need. Comprised of USD, JPY, EURO, Chinese RMB, GBP with different weightings adjusted by each currency’s current prominence.

If an IMF member country needs liquidity, it can exchange its SDRs for useable currencies held by other members. Their SDR holdings go down but they get liquidity in the currencies required to meet balance of payment, add to their own reserves, pay IMF loans or add to their quota increases. If countries hold onto their SDRs they earn interest. They also pay interest on their cumulative allocations at the same rate.

 

Spot price

The current price of an asset, that if bought or sold, can be immediately delivered.

 

Spread betting

Same as a CFD, but taxed differently where it is allowed. The aim is to take advantage of the price fluctuations of an asset, without owning the underlying. It is illegal in many countries except the UK and Ireland, where it is regulated as an investment activity by the FCA (Financial Conduct Authority). Profits are exempt from capital gains tax unlike with CFDs.

 

Spread

The difference between the buy and sell prices of an asset. The spread is the commission that brokers charge their clients for using their platform and tools.

 

Square (position)

When a trader offsets long with short positions in a way that squares the result. Also called flat positions. The point is to keep them square until a clear direction becomes apparent.

 

Stablecoin (crypto)

A coin pegged to a real-world asset like the USD. An example is USDC and USDT.

 

Stagflation

A period in an economy that experiences high inflation, high unemployment and stagnant economic output. It’s a complex situation because the economy is attacked from multiple variables. Fixing one might exacerbate another. The 70s in the US is an example to look into, since a number of reasons (the Vietnam war that just finished, the Bretton Woods agreement, oil embargos creating supply shortages and increasing energy prices, the Fed’s policies).

 

Sterling

Another name for the British Pound.

 

Stock exchange

A centralized regulated market (under MiFID 2), where listed shares are traded. There are over 55,000 listed companies worldwide. Most well-known exchanges include the NYSE, the NASDAQ, the TSE (Japan), the SSE (China), the Euronext, the LSE (UK), the HKSE (Hong Kong) and others. Also known as the stock market.

 

Stock index

A group of shares that are bundled and valued based on a strategy (company size, or price or other). Indices are a popular way to diversify portfolios since traders invest on a bundle of shares, rather than individually. They are great in helping to gauge sectors, subsectors, or economies.

 

Stock split

When a company decides to create more shares (without issuing new ones), they do stock splits. One share can become 2,3 or more depending on the strategy of the company. A 2:1 split, would mean that 1 share becomes 2, even though the value remains unaffected. One $200 share therefore, will become two shares worth $100 each.

With stock splits, companies want to make their stock more affordable and increase liquidity by attracting smaller investors. Berkshire Hathaway BRK-A stock, never underwent a stock split, skyrocketing its price to over $600,000 (as of today).

 

Stock symbol

During the underwriting process, a company selects the exchange that it will be listed on together with a unique symbol to mark its territory. Examples include MSFT for Microsoft, AAPL for Apple, NVDA for Nvidia, AMZN for Amazon.

 

Stocky

A nickname Swedish Krona, one of the Scandies – Scandinavian currencies of Norway, Sweden and Denmark).

 

Stockbroker

A natural or legal person that buys and sells securities on behalf of other people.

 

Stop-loss

An order placed on transactions, to close them automatically at specific levels. As the name implies, stop loss orders result in losses, but in a controlled manner that has been calculated and accepted by the trader to prevent further loss.

 

Strike price

The price level at which an options contract can be exercised. The strike price can be exercised until the expiration of the contract.

 

Support level

The lowest level in a range, that resists selling pressure. The opposite is a resistance level.

 

Supranational organization

An organization that operates in multiple countries like the United Nations (UN), the World Trade Organization (WTO, NATO and the International Monetary Fund (IMF).

 

Suspended trading

When a regulatory body suspends trading of a financial instrument. Traders during suspension time, cannot buy or sell the specific instrument.

Swaps

An agreement between two parties (usually financial institutions) to exchange cashflows, payments or interest for a specified time. Swaps can involve any instrument (like interest rate, currency, commodity, credit default) and usually include two legs (sides) in a transaction. An example is when a bank that charges fixed interest rates on its loans, and swaps the interest payments with a bank that charges floating (variable interest). Each bank has its own reasons for accepting to enter into a swap agreement.

 

Swing trading

An investment strategy that focuses on the period a transaction stays open. In contrast with day trading that aims to close a position in one day, swing trading refers to positions held for more (days even weeks). Swing is in between day trading and position investing (long term trades).

 

Swissy (or Swissie)

A nickname of the Swiss Franc (CHF). CHF is an abbreviation of Confoederatio Helvetica Franc.

 

Syndicate (bonds)

An alliance of multiple parties to purchase the whole lot of a bond issuance. They will then be responsible for distributing the bonds to the public through the secondary markets. One of the underwriters is assigned to be the administrator (the syndicate manager). Also known as the underwriter syndicate.

 

Synthetic replication

When an exchange traded fund (ETF) doesn’t physically own the constituents of a benchmark index but instead uses derivatives like swaps. There are reduced costs and tracking errors, but increased risk for investors. The replication is mentioned in the risk details of the ETF. The opposite is a physical replication.

 

Systemic failure

Refers to the failure of a market (or a segment), or the failure of a large entity (mega corporation, quasi government or government), that could cause a destructive ripple effect with unknown consequences. The consecutive failure of the banking system during the great recession of 2008, highlighted the systemic nature of large banking institutions and what could happen if left unchecked.

 

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Tangible assets

All the physical assets on a company’s balance sheet. This includes inventory, machinery, office equipment, real estate, and any materials used in the production of a finished product. The opposite are intangible assets.

 

Technical analysis

Technical analysis is a set of mathematical formulas, that are used to identify trends, momentum, volatility and volume at any given time period. Technical analysis assumes that the market discounts all fundamentals that are reflected in the asset’s price.

 

Technical indicators

Mathematical formulas applied to charts, to understand the price history of any asset, in periods of a few minutes to many years in the past. The aim is to predict what the price will do next.

 

Terms of Trade

Measures the ratio of export prices against import prices, to find the current standing.

ToT = Index of export prices / index of import prices x 100

 

Theta (options)

One of the five Greeks that measure the sensitivity of option prices (premiums), relative to other variables. Also known as time decay, the variable of Theta is time (how much the premium will decrease as the contract reaches expiration.

 

TIBOR

The Tokyo Inter Bank Offered Rate.

 

Tick

The number that changes with every move in an asset’s price. It could be 1 point or more.

 

Total cost of ownership (ETF)

The total cost of ownership (TCO) of an ETF is made up by tracking the return difference (expense ratio + portfolio management efficiency – securities lending revenue) and the investor trading costs (Bid/Ask spread + ETF trading commissions).

 

Trading floor

The place where financial instruments are traded. Physical trading floors are still around but due to electronic trading they’ve become scarce. The Guinesss Book of world records lists the UBS floor in Connecticut USA, with an area of over 8,600 sqm.

 

Trailing stop (and trailing step)

A trailing stop is a type of stop-loss that moves together with the price at the level chosen by the trader. It’s a good tool for markets that are in the money, locking in profits as the market moves favorably. A trailing step is the number of points that need to move for the trailing stop to recalibrate at a new level.

 

Tranche

An instalment, or a portion of a larger amount.

Treasury (stocks)

A company’s shares that are reserved and unavailable for trading. Taking the treasury out of the outstanding shares of a company, makes a more accurate adjustment of what’s available (known as float adjustment).

 

Treasury bond

Government bonds issued by the US Treasury, with collateral the full faith and credit of the USD government. These include T-Bills, T-Notes, T-Bonds and TIPS.

 

Trend

The market’s direction, whether upwards or downwards. One of the big attributes of technical analysis, is that the market moves in trends. Following the trend “friend”, is always advisable, the same way its inadvisable to move against it. Identifying a trend early on is the first step before any further evaluations.

 

Take profit (T/P)

An order placed on transactions, to close them automatically at specific levels. As the name implies, take profit orders result in profits but in a controlled manner, that has been calculated and accepted by the trader to lock in the desired result.

 

Takeover

When a company (or an individual) takes control of a company by buying over 50% of its stock. A voluntary takeover is conducted with the knowledge of the company being acquired. When the takeover happens without the knowledge of the acquiring entity, it is known as a hostile takeover (legal activity, but with many legal barriers that can show-up during the process.

 

Thin market

An illiquid market environment. A dangerous situation for any trader given the expensive (wider spreads) pricing, irregular and unpredictable moves (extreme volatility), slippage and high risk.

 

Time to maturity

The remaining time until the expiry of a derivative contract. Bonds also have a maturity date where coupon payments stop and the principal amount is returns to the bond holder.

 

Tokenomics (crypto)

The study and analysis of the economic structure of a token.

 

Trade balance

The difference between a country’s imports and exports. Trade surpluses occur when exports are more than imports, and trade deficits occur when exports are less than imports. Countries that rely heavily on exports for income, tend to keep their currencies devalued to attract foreign investment.

 

Trade size

The value of a trading contract, after its multiplied by the leverage – if applicable (for example forex is measuring the trade sizes in lots).

 

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UCITS

Abbreviation for Undertakings for Collective Investment in Transferable Securities. UCITS are funds regulated in the EU. They can be structured like ETFs, traditional mutual funds, or money market funds.

 

UK Oil (Brent Crude)

Another name for Brent Crude Oil. Brent crude, refers to the crude oil extracted from the Brent oil field in the North Sea. Its characterized as light sweet crude oil and is one of the three oil benchmarks used by traders of oil contracts, futures and derivatives. The other two major benchmarks are West Texas Intermediate (WTI) and Dubai/Oman.

Benchmark prices are needed due to the variety of crude oil grades (see API gravity). Brent has an API gravity of 38 which is considered top of the line. OPEC uses Brent Crude as a pricing benchmark.

 

Ultimate Beneficial Owner (UBO)

The person who ultimately benefits from an entity’s transactions.

 

Unconfirmed (crypto)

When a transaction has not been added to the blockchain.

 

Unconvertible currency

Also known as non-convertible or blocked currency, it is a currency that can’t be freely exchanged (or converted) to another currency due to official regulations.

 

Underlying asset

The real market (or more specifically the security) that derivative contracts are structured from. For example, currency options contracts, are derivatives of the currency market.

 

Undervalued (asset)

When an asset’s price is below its intrinsic value (what its actually worth). Undervalued stocks can be identified through their multiples and by analysing their fundamentals (P/E, D/E, RoE, Dividend yield etc).

 

Underwriting

Multiple meanings, but primarily refers to the process of issuing and distributing securities. It also refers to the checklist that a lender (like a bank) goes through prior to giving out loans and insurance policies.

 

Underwriting syndicate

A collective pool of underwriters, that group together to issue and distribute a security. One of the parties, acts as the manager responsible for administration.

 

Unemployment rate

Metric of the number of people not employed but are actively seeking for a job.

 

Unencumbered

Real estate with no attachments to loans. Either bought on cash, or with its mortgage paid off.

 

Unicorn

A start up with market value of over $1billion. Examples include Airbnb, Amazon and Google.

 

Unit Investment Trust (UIT)

One of the three structures of mutual funds, with the other two being open-end and closed-end funds. A UIT has an unmanaged portfolio (buy and hold type of passive investment), no fund manager, no board of directors and a specified life expectancy.

Unit of Account

A standard numerical value, consistently (or commonly) used in transactions. Serves as one of the three functions money serve, with the other two being Medium of Exchange and Store of Value.

 

Unit trust

A type of mutual fund, that manages a portfolio of assets (could be any asset), via a fund manager, and on behalf of investors. Its called a unit trust, because once the portfolio is complete, the total fund is split into units, which investors can buy (hence the term unit holder).

 

Unlimited liability

A complete liability responsibility for debts or other obligations of the person (natural or legal).

 

Unpermissioned ledger (crypto)

A fully open and transparent data ledger, that is not controlled by a single party.

 

Unregulated

An entity that is not supervised (or regulated) by an official authority body.

 

Uranium (U)

A key component of nuclear energy, required for both fusion (still experimental) and fission of atoms that turn water into steam for electricity production. Part of the Actinides in the periodic table, that release energy while they decay (they decay into other elements/particles).

Uranium is a heavy (heaviest atomic weight of all elements that occur naturally) , radioactive material, part of the non-renewable energy sources, used by the healthcare and military sectors. Uranium is traded physically, through stocks and ETFs.

 

US Dollar Index (DXY)

An index that measures the performance of the USD against a basket of other currencies. Biggest weight is given to Euro, followed by JPY, GBP, CAD, SEK and CHF.

 

US Oil

Another name for West Texas Intermediate Crude Oil. WTI crude, refers to the crude oil extracted from Cushing, Oklahoma in the US. It’s characterized as light sweet crude oil and is one of the three oil benchmarks used by traders of oil contracts, futures and derivatives. The other two major benchmarks are Brent Crude and Dubai/Oman.

Benchmark prices are needed due to the variety of crude oil grades (see API gravity). WTI has an API gravity between 37-42 and below 0.42% sulphur content which is considered top of the line. OPEC uses Brent Crude as a pricing benchmark.

 

US Treasury

The department of the US government, that is responsible for printing new money. Unlike any other country that relies on its central bank for printing money and issuing debt securities (government bonds), in the US both of these functions are the responsibility of the US Treasury.

 

Usury

An illegal practice of loaning with very high interest.

 

Utility token

Used to access a product or service within the ecosystem of their native blockchain. They are called utility because they offer utility (a specific use or function). They are not designed to be investment vehicles, and they serve the particular purpose intended (like paying for transactions on the network or participating in other network activities). Think of Bolt issuing its own tokens for accepting payment and incentivising its users to buy them. Bolt tokens would be very valuable for Bolt users, but worthless to anyone else.

 

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Validator (crypto)

A natural or legal person that validates transactions on a Proof of Stake network (blockchain). In the case of Ethereum as an example, a validator stakes 32ETH in order to be able to participate.

 

Value at risk (VaR)

Metric of the risk of loss from any investment, during a specified period.

 

Value date

The settlement day of a contract.

 

Value stock

A stock trading at a price lower than its intrinsic value (what it is actually worth).

 

Valuation

Measures the value of a company’s stock after analyzing its fundamentals.

 

Vanilla (options)

The purest form of option contracts that have no restrictions or limitations other than the strike price (and the expiry date).

 

Variable costs

Costs associated with the performance of a business. They are variable, because they increase or decrease depending on the performance unlike fixed costs, that remain constant throughout.

 

Vega

One of the five Greeks that measure the sensitivity of option prices (premiums), relative to other variables. The variable of Vega is implied volatility – IV – of the underlying (IV shows by how much an asset’s price is expected to change).

Velocity of money (VM)

All transactions during a specified period put against the money circulating in the economy (GDP/Money supply). A more accurate representation though is V=PQ / M, where V is the Velocity, P is the average price of goods and services, Q is the quantity of transactions and M is the money supply.

 

Venture capital

A financing type, for start-ups to push their business off the ground. Venture capitalists ride the growth potential of the start-up and exit once the valuation targets are met (or not).

 

VIX index

The CBOE Volatility Index. Measures the volatility on the S&P 500.  VIX measures the implied volatility of the S&P 500 in the coming 30 days. VIX has an inverse relationship with its benchmark index. When VIX is low, it indicated low volatility and traders are more confident to trade the underlying stocks. When VIX is high, volatility is high triggering selloffs or pauses in trading.

 

Volatility

Another way of describing uncertainty in the markets. Most important factors that trigger volatility are economic, political/geopolitical events, fear, greed and any changes in investor’s expectations. Volatility increases risk exposure, that can be translated into sharp and unexpected price fluctuation, wider spreads, slippage and price gaps.

 

Volume

Measures how much an asset is traded over a specified period. An important metric since traders can gauge when there is increased or decreased activity in the market, which they combine with other indicators to make better decisions.

 

Voluntary liquidation

When the shareholders of a company don’t fight the proceedings and (at least in Cyprus) it’s a costly and complex process. The board proposes this through a meeting and a resolution, they appoint a liquidator, until its finalization and liquidation. The opposite is compulsory liquidation.

 

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W bottom (chart pattern)

A double bottom pattern (bullish reversal), that looks like a W on a chart. It indicates that sellers that had the upper hand in a downtrend are losing momentum, and the trend is about to reverse to the upside. The opposite is M top.

 

Wage-push inflation

A rise in prices due to a sharp increase in wages. When companies compete for human resource, they have to pay higher wages. They can afford this by increasing the prices of their products, causing inflation. The extra money that workers have, also contribute to inflation, since they affect demand in the economy.

 

Warrant

Issued by a company that intends to raise capital. Similar to stock options, they give the right to the holder to buy or sell the underlying security at a specified price before expiration. Stock options trade on exchanges, whereas warrants over the counter directly by the company.

 

Watered stock

An artificially overvalued stock, that has an exaggerated price compared to what its actually worth. Investors must pay close attention to what they buy, since watered stocks are another way of defrauding investors.

 

Weekend effect (stocks)

Referred to as a theory of “seasonal anomaly” that sees stocks giving higher returns on Friday and lower returns on Monday. Popularized in 1973 by an analyst (Frank Cross), who studied the returns of the S&P 500, and found that the best performing day of the week was Friday, and the worst was Monday.

 

West Texas Intermediate (WTI)

The crude oil extracted from Cushing, Oklahoma in the US (see US Oil).

 

Whales

Traders or investors whose activity is characterized by large volumes. They can have an impact on the market and therefore other traders / investors pay close attention to what they do.

 

Widow and orphan stock

A low risk (low volatility) stock that pays high dividends. They tend to be large, stable and reliable companies, of sectors not affected by economic cycles. Examples include Walmart (retail consumer goods), Procter and Gamble (consumer goods), Texas Instruments (semiconductors), Coca Cola (beverages), Verizon (telecommunications) and others.

Wind energy

A type of renewable energy (constantly replenished) that harnesses the power of the wind, to spin turbines that produce electricity. Wind was used to collect and convert kinetic energy to push ships through their sails or collect water through windmills. The largest wind farm today is the Gansu Wind Farm in China, with 20,000 MW (20 GW) of power, that can power 15 million homes.

 

Wire transfer

Term coined at a time when banks used telegraph wires, to communicate bank transfers. Today they refer to electronic fund transfers, from one bank account to another.

 

Working capital

The capital of a business, available for its day-to-day operations. It’s calculated by removing current liabilities from current assets. The metric ensures the company has enough cash (or cash equivalents) to meet its short-term obligations.

 

World bank

A supranational organization, that stemmed out of the Bretton Woods discussions in 1944 (when the Gold Standard was adopted and pegged 44 currencies against the USD at a fixed price of $35 an ounce). The bank’s purpose was to give loans (with a social impact) to developing countries, with guarantees from the countries themselves. The cooperation agreement aimed at a prosperous and stable global economy.

 

World Trade Organization (WTO)

A supranational organization, that facilitates international trade. It’s headquartered in Switzerland and was founded in 1995. Prior to that, same as with the World bank and the IMF, and post WW2, it was imperative for countries to learn to cooperate for the general good and prosperity. The GATT (General Agreement of Tariffs and Trade) was established in 1947 between 23 countries, and was replaced by the WTO in 1995. Today WTO includes 164 member countries.

 

Writer

Another name for the seller of a security. In options trading for example, the writer is the seller of the option.

 

Write-off

An acknowledgement of failure of an asset to produce. In the books of a company, it is recorded as a loss, and it can be a slow reduction of the value (through depreciation or amortization), or a one-off expense entry.

 

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XD

Abbreviation for ex-dividend. Assigned next to a stock’s price, to notify investors that the record day is passed. The record day is the last day that investors must hold the stock, to be eligible to receive dividends. Passed the record day, anyone who buys the stock is not eligible to receive dividends.

 

XDR

The currency symbol for the Special Drawing Right (SDR), a reserve asset of the IMF created to be exchanged with other reserve assets of member countries at times of need. Comprised of USD, JPY, EURO, Chinese RMB, GBP with different weightings adjusted by each currency’s current prominence.

If an IMF member country needs liquidity, it can exchange its SDRs for useable currencies held by other members. See SDR.

 

Xenocurrency

Another way of saying foreign currency. Any foreign currency used for exchange, trade, payments in a country is considered xenocurrency. Xenos (Ξένος) in Greek means foreigner.

Xetra

Trading venue operated by the Frankfurt Stock Exchange. Trades primarily in stocks and ETFs.

 

XR

Abbreviation for ex-rights. Assigned next to a stock’s price, to notify investors that they are not eligible (don’t have the right) to participate in newly issued shares. Shareholders are the first to be notified when newly issued shares are available. The XR indicates that whoever buys the stock from then on, has no rights of participation.

 

XRP

The cryptocurrency symbol of Ripple, a payment network that powers cost efficient, cross border payments. Ripple was launched in 2012, with market cap (as of today) at $26.4 billion.

 

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Yankee bond

When foreign entities (governments, banks and corporations) issue bonds in the United States, and the bond is denominated in USD, they are known as Yankee bonds. They abide by US laws and regulations and they are usually registered with the SEC.

 

Yard

One billion currency units. Currencies are traded in lots (100,000 units), and brokers combine the volume into yards to measure the transactions.

 

Yield

The income generated from any action is called yield. In farming it’s the produce, in investments it’s the return on the investment. Its most commonly used with bonds to indicate the return (interest payment) of the bond but can refer to any type that yields returns.

Yield curve

If we were to create a chart of a bond’s yield over different periods until maturity, we would get the yield curve. The curve can be normal, flat or inverted (a sign of an upcoming recession). Economists, analysts and central banks pay close attention to the yield curve, to know the status of their economy. Yield curve only references government bonds.

 

Yield curve control (YCC)

Part of Quantitative Easing policies to stimulate an economy, but with the target being the long-term interest rate of a country’s bonds. The central bank will set a target rate they want the long-term bond to reach, and they will buy or sell the security until this rate is met. Their target Is to maintain rates at an acceptable level, so that the economy continues to borrow without fear of increasing rates.

 

Yield to maturity

The entire return an investor should expect, if a bond is held all the way to maturity. To calculate the yield to maturity we would use the formula:

YTM = [Coupon + (FV-PV)/M] / (FV+PV)/2

 

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Zero lower bound

When interest rates are lowered at (or very close) to zero percent, the central bank’s ability to stimulate economic growth becomes ineffective. Although the general consensus is to lower rates (make money cheaper to get) to promote growth, the 2008 recession and the case of Japan showed that It can also be ineffective.

 

Zero coupon bond

Bonds bought at a discount to their face value (for example $900 instead of $1,000) and when they mature, they pay back the full face-value. The difference received ($100 in the example above) replaces the interest payments, which do not apply here, hence the name zero coupon. The US Treasury bills (T-bills) are an example.