Glossary of Terms

A

Accrual

Accrual refers to how premiums and discounts are gained on forward exchange transactions. These transactions are related to interest arbitrage deals or deposit swaps. The accrual rate is calculated for the duration of the deal.

Accumulation / Distribution

Accumulation and distribution is basically a mathematical amount that shows the supply and demand of a currency or stock. This number indicates if investors are distributing (selling) the security or accumulating (buying) it.

Advance / Decline Ratio

This is a ratio that measures the number of securities that are advancing in value to the number of securities that are falling in value. Sometimes, the advance and decline ratio is called the breadth of the market.

Agent

An agent is a person that is acting for someone else. A broker or a firm will act as an agent for the buyer or seller. This agent will not purchase or sell securities for their personal account.

Aim

AIM stands for the Alternative Investment Market. The AIM is a secondary market that is run by the London Stock Exchange. Since the listing requirements on the London Stock Exchange are higher, smaller companies will normally be listed on the cheaper Alternative Investment Market.

Alpha

The alpha is a statistical measurement. It seeks to calculate the risk versus the performance. This number can also be used to determine how much the stock changed due to the company instead of the larger market conditions.

Amortization

Amortization refers to a reduction in a fund or debt through periodic payments. These payments include interest and at least a part of the principal. It can also refer to writing off an intangible asset.

Analyst

An analyst is someone who has extensive experience in judging the financial markets. This person will conduct research and make recommendations to investors and institutions about their investments.

Annual Report

Each year, companies send out a booklet to their shareholders. This annual report shows the earnings, profits and sales of the company. Generally, it will paint a picture of the company’s operations and look at balance sheets or important new facts about the business.

Arbitrage

Arbitrage refers to an investment strategy where investors seek to take advantage of aberrations in prices. The trader will purchase or sell an instrument while taking an opposing position in a related market. Once the market starts to correct itself, the trader will take advantage of these price differentials.

Ask Price

The ask price is the lowest price that a dealer will sell a currency, security or commodity for. It is also called the offer.

Asset Allocation

Asset allocation refers to how a trader or investor balances the risk and reward in their investments. They often will allocate their assets into money market accounts, stocks, bonds and mutual funds.

Assets

An asset is any possession or security that can be sold on an exchange.

At Best

When an investor or broker wants an asset to be sold or purchased at best, they are asking for it to be bought or sold at the best rate possible.

Average Maturity

Average maturity refers to the amount of time that securities are held by a mutual fund. The average is taken from the time it takes for the securities to reach maturity. Any change in interest rates can impact funds that have a long average life.

B

Barrier Range

A barrier range bet is a kind of bet where the person believes the market will remain within a set upper and lower barrier. For example, if the index has stayed within a range of 4,000 and 4,100 for several months, an investor may assume that the pattern will continue. They would set a no-touch barrier range to capitalize on this. A barrier range works best when the investor believes that the index will have a quiet period for a couple of days or a week.

Bear Market

A bear market is when prices are dropping in the marketplace or when it is widely expected that they will fall. When this happens, dealers and brokers are more likely to sell securities instead of purchasing them. A person can also be described as a bear if they believe the market will go down and makes down bets.

Bear Market

A bear market is when prices are dropping in the marketplace or when it is widely expected that they will fall. When this happens, dealers and brokers are more likely to sell securities instead of purchasing them. A person can also be described as a bear if they believe the market will go down and makes down bets.

Beta

Beta is used to measure how volatile a stock is compared to the general market. If the beta is lower than one, it shows that the stock has a lower risk than the general marketplace. When the beta is higher than one, it indicates that the stock has a higher risk level than other stocks on the marketplace.

Bid & Ask Spread

This refers to the difference between what someone is willing to pay for a security and what the seller is asking. It is a term used with currency, securities or assets. The offer (ask) price is higher than the bid price.

Bid Price

A bid price is the highest price that someone is willing to purchase currency, securities or commodities. It is typically lower than the ask price.

Big Figure

The big figure is a term for the beginning two or three digits in a currency exchange. If the dollar/yen bid/ask price is 115.27/32, then the big figure is 115. For an exchange of euros for United States dollars priced at 1.2855/58, the big figure would be 1.28. When a dealer quotes prices, they generally leave out the big figure. In this case, the EUR/USD price would be quoted verbally as just 55/58.

Binary Bet

A binary bet is a kind of spread that can only have two outcomes. It is essentially a fixed odds bet. Losses for binary bets are limited because they are known from the beginning. It is like a traditional fixed-odds bet, except the prices are continuously quoted. Traders can end their bet before the final settlement to gather an early profit or to limit their losses.

Block Trade

A block trade is a kind of trade that encompasses a larger amount of shares. Normally, block trades involve at least 10,000 shares.

Blue Chip Stocks

A blue chip stock is normally issued by a well-established company. In the United Kingdom, they are FTSE 100 companies. These stocks have a history of paying out dividends in bear and bull markets. Overall, blue chip stocks are thought to have lower risk due to their history of success.

Book Value

To calculate a company’s book value, investors take the business’s total assets and then subtract any liabilities, debt or intangible assets.

Break-away Gap

The term break-away gap refers to a large gap in a price chart. This indicates the end of a price pattern and the start of a new market move. This technical analysis may look like an actual break in the price or higher volatility.

Breakeven Point

The breakeven point is where the trade begins to earn money. Before this point, it is a losing trade. After the breakeven point is reached, the trade starts to become profitable.

Broker

A broker is someone positioned between buyers and sellers. They deal in securities, commodities, currency and other products. The term broker can be applied to both a firm and an individual.

Bull Market/Bull Run

A bull market is a type of market where it is widely expected that prices will rise or the prices are currently rising. Dealers in a bull market are more likely to be buyers rather than sellers. A bull run is when the market is in an almost continuous upward trajectory. People who are described as bulls believe that prices on the market will rise.

Business Cycle

A business cycle is a recurring cycle when economic conditions advance. Access to credit expands and economic activity increases to a feverish level. After the expansion, the economy drops and declines. Once bad investments and maladjustments have been corrected, the economy begins to recover again.

Buying Forward (Futures)

Buying forward refers to when currency, commodities or securities are purchased at a specific price for a delivery date in the future.

C

Cable

Cable is a kind of trader slang that refers to pairing the United Kingdom’s sterling against the United States dollar. The term began when exchange rates were transmitted between the United Kingdom and New York City through a transatlantic telegraph cable.

Candlestick Chart

A candlestick chart shows the trading range for the day. It will also show the opening and closing prices. If the close price is higher than the opening price, the rectangle between the start and end will not be shaded. If the opening price is higher, it will be shaded.

Capital Asset Pricing Theory

This theory is used for portfolio analysis. It is a way of diversifying investments so that the entire portfolio contains less risk than the sum of individual stocks.

Capital Gain

Capital gain is any profit earned when a security is sold at a higher price than when it was purchased. Capital gain does not include any interest income or income from dividends.

Capitalization

Capitalization is a term for the long term financing of the corporation. It includes outstanding long-term bonds as well as shareholder’s equity.

Caps

A cap is the maximum amount that a rate can advance within a specific amount of time.

Carry Trade

A carry trade is conducted on the foreign exchange market. The investor earns a profit by selling a currency at a low interest rate while purchasing another currency at a higher interest rate.

Cash Flow

Cash flow refers to the net losses or profits of a business. To get this figure, noncash expenses like depletion, amortization and depreciation are added.

CFDs

CFD stands for contracts for difference. CFDs are a kind of leveraged equity derivative security. It enables users to speculate on share price movements. The users of CFDS do not need to own the underlying shares that they are speculating on.

Charting / Chartist

Charting is a type of analysis used on historical price charts. These interpretations are used to forecast how a security will perform in the future.

Chinese Wall Doctrine

The Chinese Wall Doctrine is a policy by firms to place barriers that stop the flow of information between different departments. It is used to make sure that insider information in one department is not used to conduct trades in other places within the firm or in recommendations to clients.

Closing Price

The closing price is the value of a security or commodity at the end of the trading session.

Commission

Commission is the fee charged by a broker for purchasing or selling a security. It is paid by the investor.

Commodity

To be considered a commodity, the item traded must be tangible. Popular commodities include oil, cotton, platinum, rubber, copper and grain. These commodities are traded on a commodity market.

Common Stocks

Common stocks are the most basic form of equity ownership of a business or company.

Counter Currency

When currencies are exchanged, they are listed as two currencies. The counter currency is the second currency listed within the pair.

Counterparty

The counterparty is a participant within a financial transaction.

Currency Pair

A currency pair is the term for the two different currencies that make up a foreign exchange rate. The quoted exchange rate is for the amount that the first currency is worth and it is show in terms of the second currency. An example of a currency pair is the GPP/USD or the United Kingdom’s sterling and the United States dollar.

Currency Assets

A currency asset is a kind of asset that will be changed into cash within the time span of a year.

Current Liabilities

A current liability is a type of obligation or liability that must be paid for within the time span of a year.

Current Yield

The current yield is the value of a stock dividend.

Cyclical Stock

The current yield is the value of a stock dividend.

D

Dealer

A dealer is a person or a company that purchases and sells some kind of product.

Debt to Equity Ratio

To calculate the debt to equity ratio, the long-term debt of a firm must be divided by shareholders’ equity. This ratio shows the amount of risk associated with a firm. A higher ratio indicates that it has higher risk, while a lower debt to equity ratio shows that it has a lower risk.

Delivery Date

After a futures contract or commodity is purchased, a day is set for its delivery. This is known as the delivery date.

Delivery Month

Once a futures contract or commodities contract is purchased, the delivery month is the month when the purchase has to be delivered.

Depreciation

Depreciation is a non-cash expense. It is a numerical value that shows the cost of wear and tear on property that is used by a company.

Derivative Security

Derivative security is a contract where the value is dependent upon some other investment, security or index. A stock option is considered a derivative security since its value is based on the price of an underlying stock.

Diversification

Diversification is when an investor or firm purchases a variety of securities in an attempt to limit risk. These assets have returns that are not directly related over time.

Dividend

A dividend is when a corporation distributes the earnings it made to shareholders in the company. It is prorated by the class of security and given in cash, scrip or shares. On rare occasions, dividends may be paid as property or company products.

Double Up Bet / Double Down Bet

Any double down, intraday doubles or double up bet refers to when a trader predicts how the market will move correctly and doubles their money. It is like a flash bet, but it occurs over a longer period of time. Intraday bets must start and finish within a day while normal doubles will run for the entire week.

Double-touch Bet

A double-touch bet is normally used in a volatile market and has a fixed odd. The trader effectively bets that the market will hit a level below and another above during a set period of time.

Dow Jones

The Dow Jones is one of the main indexes in the United States. It is similar to the FTSE 100 in the United Kingdom.

Down Bet

A down bet is a bet on the market going down. It is a different way to describe a sell bet or going short.

E

Earnings Per Share (EPS)

EPS is a term that refers to the amount of profit allocated by a company to every outstanding share of its common stock.

EBITDA

EBITDA is an acronym that stands for earnings that are calculated before interest, tax, depreciation and amortization.

Ex-dividend

Ex-dividend is a period of time between the announcement of dividend payments and the actual payment. It normally lasts a couple of days. Any investor who buys a share during this time is not allowed to receive that dividend payment and must wait for a few months or a year for the next payment.

Exchanges

Exchanges are groups of people, firms or organizations that bring sellers and buyers of securities to one place. It can be a stock exchange, a metal exchange, commodity exchange or another sort of exchange.

F

Flash Bet

Flash bets are double-or-nothing bets that occur in a very short period of time. The investor is betting the market will finish up or down from its starting point. Flash bets generally last for two to fifteen minutes and entail a high level of risk. If the investor bets correctly, they receive double their money while a losing bet receives nothing.

Forwards Contract

A forwards contract is a deal to purchase or sell an asset at some future date for an agreed upon price. This contract is like a future, but it is normally conducted privately between two separate parties.

Forward Rate Agreements (FRA)

A forward rate agreement is a deal that allows both parties to either borrow or lend at a set interest rate for a period of time.

Futures Contract

A futures contract is reached by two parties that want to sell or purchase a fixed quantity of a security, commodity or currency in the future. The delivery date is set at a fixed price and the standardized agreement is conducted on a futures exchange.

G

Growth Asset

This is a type of asset that outperforms inflation. It gives the investor a return that is made up of income and/or capital growth.

Growth Stock

A growth is in a company that is thought to have the ability to increase consistently over an extended amount of time.

Guaranteed Stop

Guaranteed stop is a stop-loss orders that seeks to put a limit on an investor’s liability. It ensures an exit price for the trade and avoids any possibility of slippage.

H

Hedging

Hedging is a kind of investment strategy where the investor tries to get rid of any loss for an investment. They may hedge their investment by selling short, using stock options or setting future contracts.

Held

Held is a situation when a security is not available to trade for a temporary period of time. For example, a market maker may not be able to display quotes.

High No-touch / HNT

High no-touch refers to a fixed-odds bet that is considered no-touch.

I

Illiquidity

An illiquid market is where underlying stock is not readily available and there is a low level of trading. Purchasing or selling securities can create exaggerated price fluctuations.

Initial Public Offering (IPO)

An initial public offering is when a company first begins to list its shares on the stock exchange. This is also referred to as flotation. To carry out an IPO, the company must release a detailed prospectus that allows investors to learn about the history of the company, its directors, associated risks and any accounts held by the company.

Insiders

Insiders are the officers within a company or are on the board of directors. Any person who holds a large voting share can also be considered an insider. Insiders are assumed to have “insider information” about the workings of the company.

Interest-Rate Swaps

An interest-rate swap is a manner of changing how debts are held by businesses or banking institutions. One part trades a stream of interest for a different stream of interest. Interest rate swaps can be floating-to-floating, fixed-to-floating or fixed-to-fixed interest rate swaps.

IPO Date

The IPO date is the day that a company holds its initial public offering.

L

Leverage / Gearing

Leverage is a relationship between the initial outlay and profit/loss. If a position has a high level of leverage, it will lose or earn a large amount from a very small outlay. If the position has low leverage, it will lose or gain a smaller amount. In general, the initial outlay is the deposit for making the bet.

Limit Order

A limit order is an order to purchase or sell a security at a price designated by the client.

Liquidity

A liquid marketplace normally contains stocks that are readily available. Buying and selling in a liquid marketplace causes a small fluctuation in price and trading is normally at a high level.

Long Liquidation

This term refers to a process of reducing the amount of contracts, securities or commodities held.

Long Margin

Long margin is when an investor buys securities on margin. This means that they are using borrowed money from the broker.

Long Position

A long position is when an investor purchases a security with the belief that the market will rise. When dealing with futures exchanges, it is when a dealer is a net holder of contracts and purchases more than they sell.

LSE

LSE is an acronym for the London Stock Exchange.

M

Margin

Margin is the amount of cash that is paid by the client and is a percentage of the value of securities. In essence, it is a deposit required by the client. This is also called variation margin and is often used with CFDs or spread betting. It can also be used with leveraged products such as covered warrants and foreign exchange trades. If a customer is trading on margin, they are only paying a portion of the entire value of the trade.

Margin Call

A margin call is used when an investor is trading on margin. The broker demands that the customer deposits more funds to cover any losses that may happen on the current trade. With an online spread-betting company, the margin call is normally issued as soon as the client’s account slips into negative territory. If the margin call is not answered, the spread-betting company may close the trade.

Market Cap / Market Capitalization

A margin call is used when an investor is trading on margin. The broker demands that the customer deposits more funds to cover any losses that may happen on the current trade. With an online spread-betting company, the margin call is normally issued as soon as the client’s account slips into negative territory. If the margin call is not answered, the spread-betting company may close the trade.

Market Order

The term market order refers to an order to purchase or sell stock. This order is carried out with the best displayed price on the market.

Maturity Date

The date when the principal amount of a bond must be completely paid is called the maturity date.

Moving Average

To figure out the moving average, a security’s price over a period of time is calculated and averaged out. The resulting number is used to determine the level of resistance or support for the securities.

N

Net Asset Value (NAV)

Often referred to as the bid price, the NAV is essentially the market value of a share in a fund.

Net Capital

To calculate the net capital of a firm, investors take the firm’s net worth and subtract any illiquid assets.

Net Income

This is a term for all income earned after taxes and expenses have been deducted. Net income is used to figure out stock performance and calculate the profitability of the share.

No-touch Bet

A no-touch bet is a fixed odds bet that is made in the assumption that the market will not reach a certain level. It may occur when a market is stuck in a quiet period or is drifting sideways. To create the no-touch bet, an investor must designate a price that the market will not touch or beat for the duration of the bet.

O

Offer Price

The offer price is the lowest that a dealer will sell currency, securities or commodities. It is also called the ask price.

One Touch Bet

A one touch bet is a fixed odds trade. To place the bet, the trader sets a price that they believe the market will hit a minimum of one time during a set period of time.

Open Order

The term open order refers to when an order to purchase or sell a security remains in places until it is completed or cancelled by the client.

Open Position

An open position is a long or short position that has not closed yet. Until the position has ended, the dealer remains vulnerable to any changes in price.

Options Contract

An options contract is a kind of derivative investment. It grants the holder of the options contract the right in the future to purchase or sell a specific amount of an underlying asset. The price is agreed upon when the contract is made.

Over-the-Counter (OTC)

Over-the-counter is the term for any security that is not listed on a stock exchange.

P

Price/Book Ratio (P/B Ratio)

The Price/Book Ratio is a type of stock analysis statistic. The price of a stock is divided by the stock’s reported book value.

Price/Cash Flow Ratio (P/C Ratio)

The Price/Cash Flow Ratio is a ratio that compares cash flow and stock price. The cash flow is calculated from operations per shares that are outstanding.

Price/Earnings Ratio (P/E Ratio)

The Price/Earnings Ratio is a statistic that takes the most current price of a stock and divides it by the reported actual earnings per share. Sometimes, the reported actual earnings are also referred to as the projected or forecasted earnings.

Price/Sales Ratio (P/S Ratio)

The Price/Sales Ratio is a type of financial ratio that looks at the stock price and sales per share. It essentially compares the market value of the share with its total revenue.

Principal Orders

A principal order is when a dealer or a broker is dealing purchases or sales for their own account and risk.

Q

Quote

A quote is a two-way market price. This quote is comprised of a bid and either the ask or offer price.

R

Rally

A rally is when a security, market or commodity rises by a significant amount after it has suffered from a period of decline.

Registrar

A registrar is an official who works for the company. It is their job to keep a list of corporate shareholders. They also must correctly track the number of outstanding shares.

Relative Strength (R/S)

The term relative strength is usually presented in major news publications. This number shows the strength of the stock compared to other securities in its categories.

Repos

Repos stands for repurchase agreement. A repo is an agreement between a purchaser and a seller where the securities are sold and the seller agrees to repurchase them in the future. Normally, the price and date is agreed upon. Often, repos occur with United States government securities.

Resistance

The resistance level is an indicator of when to buy a stock. If prices break the resistance level, then technical analysts consider it a good time to buy. Resistance is presented as a charting pattern where the price of the stock levels off.

Retained Earnings

Retained earnings are the profits that are left over for the company after all dividends are paid out.

Return of Capital

Return of capital is a term for how cash is distributed from the sale of securities or assets and deprecation tax savings. It includes any transaction that is not related to retained earnings.

Return on Equity (ROE)

To calculate the return on equity, net income must be divided by all of the shareholders’ equity. This investment tool is a way to figure out the net income a company is capable of earning as a percent of the investment by shareholders.

Return on Total Assets

To figure out this amount, net income should be divided by the total amount of net assets.

Risk Management

Risk Management refers to a strategy that attempts to control the risk in trades. Some providers let traders limit their risk by using absolute limit bets so that losses are avoided.

Rollover

Rollover is a type of method where bets that are about to expire are closed out. They are then replaced by a similarly sized bet for the next quarter.

Running Profit

Running Profit is the total of currently open bets.

S

Scalping

Scalping is a quick form of trading where positions are only adopted for a couple of seconds. This is used to limit risk and turn a small profit. For scalping to work, the investment must have a low risk.

Shareholders’ Equity

This term refers to the total amount of a firm’s assets minus the total liability.

Short Covering

Short Covering is an action where opposing futures contracts, commodities or securities are bought to close out a short position.

Short Selling / Shorting

Short selling is essentially a trade that predicts the market will fall.

Slippage

Slippage occurs when a trader sells a security and it receives a price that is not even close to the price level when the broker issued their market order. This occurs in illiquid markets or when the market is moving extremely fast.

Spot Market

The spot market is where commodities are sold and purchased for delivery.

Spot Price

Spot price is how much it costs to deliver a commodity on the spot market.

Spread

Spot price is how much it costs to deliver a commodity on the spot market.

Stock Dividend

A stock dividend is a dividend paid out by a company in the form of a stock or share.

Stock Split

This term is used to describe when new shares are issued to replace or rank with the existing batch. Often, these shares are subdivided. Although the number of shares may increase, the value of the individual shareholders’ stock remains the same.

Stop Loss / Stop Order / Stop

A stop order is an automatic order that is used to protect a trade from potential losses. If the price drops below the stop, it will automatically be sold.

Support / Support Level

This term refers to a kind of pattern used in technical analysis. It shows the price floor that the stock would bounce back from.

T

Trade Date

The trade date is the day when a trade is carried out.

Trading Volume

Trading Volume is the total number of contracts exchanged in a certain amount of time.

U

Underlying

Underlying shares are the actual securities that are being traded through spread bets or leveraged products.

Underwriter

An underwriter is an investment banking firm that makes a company public.

V

Value Date

The value date is when a commodity is delivered. It is often the day that payment is due.

Volatility

Volatility is the amount of price fluctuations for an index, asset or rate.

W

Warrant

A warrant is granted by a firm and it gives the holder the right to buy a security at a specific price during a specific time limit. It can also be issued without a time limit.

Y

Yield

Yield refers to the amount of return that a capital investment has.

Z

Zero Uptick

This refers to a kind of short-selling technique that avoids waiting for the market to advance. It is often used by foreign exchange traders.