Prop Trading Glossary
Ask: The price a seller is willing to accept for a security.
Arbitrage: The simultaneous purchase and sale of an asset to profit from a difference in the price.
Alpha: A measure of performance on a risk-adjusted basis.
Algorithmic Trading: A method of executing orders using automated pre-programmed trading instructions.
Averages: A statistical concept central to many trading indicators, including moving averages.
Bid: The price a buyer is willing to pay for a security.
Bear Market: A condition in which securities prices fall 20% or more from recent highs.
Bull Market: A condition in which financial market prices rise faster than their historical average.
Basis Point: A unit of measure for interest rates and other percentages in finance.
Breakout: A price movement outside a defined support or resistance level.
Call Option: An agreement that gives the option buyer the right to buy the underlying asset at a specified price within a specific time period.
Candlestick Chart: A chart that displays the high, low, opening, and closing prices of a security for a specific period.
Commodity: A basic good used in commerce that is interchangeable with other goods of the same type.
Contract for Difference (CFD): A contract between two parties who exchange the difference between the opening and closing price of a contract.
Credit Default Swap (CDS): A financial derivative that allows an investor to “swap” or offset his or her credit risk with that of another investor.
Day Trading: The practice of buying and selling within the same trading day.
Dividend: A portion of a company’s earnings paid to shareholders.
Derivative: A security with a price that is dependent upon or derived from one or more underlying assets.
Default: Failure to meet the legal obligations (or conditions) of a loan.
Double Top/Bottom: A chart pattern in technical analysis describing the price movement of an asset.
Exchange-Traded Fund (ETF): A security that tracks an index, commodity, bonds, or a basket of assets.
Equity: A stock or any other security representing an ownership interest.
Economic Indicator: A statistic about an economic activity.
Ex-Dividend Date: The date on which a shareholder is no longer entitled to the next dividend payment.
Execution: The completion of a buy or sell order for a security.
Forex (FX): The market in which currencies are traded.
Futures: A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset).
Fundamental Analysis: A method of evaluating securities by attempting to measure the intrinsic value of a stock.
Fill: The action of completing an order to buy or sell a security.
Fibonacci Retracement: A term used in technical analysis referring to areas of support or resistance.
Gap: A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between.
Going Long: A security purchase with the expectation that the asset will rise in value.
Going Short: A security sale which the seller does not own, with the expectation that the asset will decrease in value.
Gross Domestic Product (GDP): The total market value of all final goods and services produced in a country in a given year.
Growth Stock: Shares in a company whose earnings are expected to grow at an above-average rate.
Hedge: Making an investment to reduce the risk of adverse price movements in an asset.
High Frequency Trading (HFT): A program trading platform that uses powerful computers to transact a large number of orders in fractions of a second.
Holding Period: The real or expected period of time during which an investment is attributable to a particular investor.
Hard Stop: A price level that, if reached, will trigger an order to sell an underlying security.
Halts: Temporary suspension in the trading of a particular security on one or more exchanges.
Initial Public Offering (IPO): The first sale of stock by a company to the public.
Index: A statistical measure of change in an economy or a securities market.
Inflation: The rate at which the general level of prices for goods and services is rising.
Intermarket Analysis: The analysis of more than one related asset class or financial market to determine the strength or weakness of the financial markets or asset classes being considered.
Illiquid: The state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value.
Joint Account: A brokerage account where more than one individual has equal rights to use the account.
Junk Bond: A bond rated ‘BB’ or lower because of its high default risk.
J-curve: A theory stating that a country’s trade deficit will worsen initially after the depreciation of its currency.
Japanese Candlesticks: A style of financial chart used to describe price movements.
Jobber: A trader who buys stock from the market maker and sells it to customers, or vice versa.
Key Rate: The specific interest rate that determines bank lending rates and the cost of credit for borrowers.
Knock-Out Option: An option with a built-in mechanism to expire worthless if a specified price level is exceeded.
Knock-In Option: A latent option contract that begins to function as a normal option (“knocks in”) only once a certain price level is reached.
Keltner Channel: A volatility-based technical analysis indicator.
Key Performance Indicators (KPI): A set of quantifiable measures that a company uses to gauge its performance over time.
Leverage: The use of various financial instruments or borrowed capital to increase the potential return of an investment.
Limit Order: An order to buy or sell a security at a certain price.
Liquidity: The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price.
Long Position (Long): The ownership of a security with the expectation that the asset will increase in value.
Lot: A standardized quantity of a particular financial instrument.
Margin: Borrowing money to purchase securities.
Market Order: An order to buy or sell a security at the best available price.
Moving Average (MA): A widely used indicator in technical analysis that helps smooth out price action.
Money Flow Index (MFI): A momentum indicator that measures the inflow and outflow of money into a security over a specific period of time.
Mutual Fund: An investment vehicle consisting of a portfolio of stocks, bonds, or other securities.
Naked Shorting: The illegal practice of short selling shares that have not been affirmatively determined to exist.
No-Load Fund: A mutual fund in which shares are sold without a commission or sales charge.
Net Asset Value (NAV): The value of a fund’s assets minus its liabilities.
Non-Deliverable Forward (NDF): A cash-settled, short-term forward contract.
Notional Value: The total value of a leveraged position’s assets.
Option: A financial derivative that represents a contract sold by one party to another.
Over-the-Counter (OTC): A security traded in some context other than on a formal exchange.
Open Interest: The total number of options and/or futures contracts that are not closed or delivered on a particular day.
Overbought: A situation in which the price of an asset is believed to have risen too high in relation to its fundamentals.
Oversold: A condition in which the price of an underlying asset has fallen sharply, and to a level below which its true value resides.
Portfolio: A collection of investments held by an investment company, hedge fund, financial institution, or individual.
Position: The amount of a security, commodity, or currency that is owned (a long position) or owed (a short position) by an individual, institution, or dealer.
Price-to-Earnings Ratio (P/E Ratio): A valuation ratio of a company’s current share price compared to its per-share earnings.
Preferred Stock: A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock.
Put Option: An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.
Quote: Information on a stock’s latest trading price.
Quantitative Trading: Trading strategies based on quantitative analysis.
Quoted Currency: The currency in which an investor maintains his or her book of accounts and the currency used to determine an investor’s profit or loss.
Quality of Earnings: The amount of earnings attributable to higher sales or lower costs rather than artificial profits created by accounting anomalies or tricks.
Quick Ratio: A measure of a company’s ability to meet its short-term obligations using its most liquid assets.
Rally: A rapid increase in the general price level of the market or of the price of a stock.
Resistance: A price level where selling of a security is strong enough to prevent the price from rising further.
Return on Investment (ROI): A performance measure used to evaluate the efficiency of an investment.
Risk Management: The process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions.
Relative Strength Index (RSI): A momentum oscillator that measures the speed and change of price movements.
Securities and Exchange Commission (SEC): The US regulatory authority responsible for overseeing securities laws.
Short Selling: The selling of a security that the seller borrows.
Spread: The difference between the bid and the ask price of a security or asset.
Stock: A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.
Stop-Loss Order: An order placed with a broker to buy or sell once the stock reaches a certain price.
Technical Analysis: A trading discipline employed to evaluate investments and identify trading opportunities.
Tick: A measure of the minimum upward or downward movement in the price of a security.
Trading Plan: A systematic method for identifying and trading securities that takes into consideration a number of variables including time, risk, and the investor’s objectives.
Time Value of Money (TVM): The idea that money available now is worth more than the same amount in the future due to its potential earning capacity.
Treasury Bill (T-Bill): A short-dated government security, yielding no interest but issued at a discount on its redemption price.
Underlying Asset: A financial instrument upon which a derivative’s price is based.
Underweight: A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security’s weight in the underlying benchmark portfolio.
Unsystematic Risk: The risk that is unique to a particular company or industry.
Up Tick: A transaction executed at a price higher than the preceding transaction.
Unrealized Gain/Loss: The theoretical gain or loss on open positions in securities that have not been closed out.
Volatility: A statistical measure of the dispersion of returns for a given security or market index.
Volume: The number of shares or contracts traded in a security or an entire market during a given period.
Value Investing: The strategy of selecting stocks that trade for less than their intrinsic values.
Vega: A measure of an option’s sensitivity to changes in the volatility of the underlying asset.
VIX: The ticker symbol for the Chicago Board Options Exchange’s CBOE Volatility Index, which shows the market’s expectation of 30-day volatility.
Warrant: A derivative security that gives the holder the right to purchase securities from the issuer at a specific price within a certain time frame.
Wash Sale: A sale of a security at a loss and repurchase of the same or substantially identical security shortly before or after.
Wholesale Money: Funds borrowed by corporations, in high volumes, in the capital markets.
Write-Down: Reducing the book value of an asset because it is overvalued compared to the market value.
Working Capital: A measure of a company’s operational liquidity and its ability to meet short-term obligations.
X-Efficiency: A concept that a firm effectively minimizes costs under given constraints.
X-Dividend: A security that is trading without the benefit of the next dividend payment.
Xenocurrency: A currency that trades in markets outside of its domestic borders.
XRT: The ticker symbol for the SPDR S&P Retail ETF.
XIRR (Extended Internal Rate of Return): A measure of return used in capital budgeting, the net present value of cash flows is equal to zero.
Yield: The income return on an investment.
Yield Curve: A line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates.
Year to Date (YTD): The period from the beginning of the current year to the current date.
Yen ETF: An exchange-traded fund that invests in the Japanese yen.
YOY (Year Over Year): A comparison of a statistic for one period to the same period the previous year.
Zero-Coupon Bond: A debt security that doesn’t pay interest but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.
Z-Score: A statistical measurement that describes a value’s relationship to the mean of a group of values.
Zeta Model: A mathematical model that estimates the chances of a publicly traded firm going bankrupt in a two-year period.
ZAR (South African Rand): The currency abbreviation for the South African