It’s the amount of interest earned on a debt, such as a bond or a loan, that has already occurred.
An ADR is an American Depository Receipt, a receipt for shares of non-U.S. based companies listed on a U.S. exchange to trade.
All-or-none order (AON)
An order where the total number of shares or contracts must be executed at the same price at the same time; partial fills are not allowed.
A type of option contract that can be exercised at any time up to the expiration of the option.
A firm that is allowed to trade on the Bourse de Montréal
Academic or pure arbitrage refers to the simultaneous purchase and sale of instruments that are perfect equivalents in the hope of taking advantage of pricing discrepancies between them to earn a risk-free profit. Most real-world arbitrage, however, is not pure. There usually is some element of risk.
An option whose payoff is based on the average price of the underlying asset over time until expiration. Also known as an average price option.
When an option holder exercises, the writer is assigned to either buy or sell the underlying asset.
When the exercise price of either a put or a call option is the same as the market price of the underlying asset.
The practice of automatically exercising options that are in-the-money by a specified amount at expiration.
Bear Call Spread
The simultaneous purchase of a call option and sale of a call option with a lower exercise price on the same underlying asset and with the same expiration for a net credit.
Bear Put Spread
The simultaneous purchase of a put option and sale of a put option with a lower exercise price on the same underlying asset and with the same expiration for a net debit.
See inverted market.
A short-term promissory note issued by a corporation that has been backed by a chartered bank.
Basis is commonly used in the futures market, and it’s the difference between the current cash price and the futures price.
The minimum acceptable quality standard of a deliverable commodity that must be meet in a futures contract.
Basis Point (BPS)
It is a common unit of measurement use to denote the percentage change in a financial instrument. One basis point is equivalent to 0.01%, or .0001.
Back-office functions include settlements, clearances, record maintenance, regulatory compliance, accounting, and IT services.
A basket order is a functionality which allows a group of individual orders saved in a single file and submitted as a package.
A pessimistic outlook on the price of an asset.
A period in which the prices of an asset fall by 20% or more.
A standard against which the performance of your portfolio can be measured, such as the S&P 500.
The highest price a prospective buyer or dealer is prepared to pay for securities or other assets.
Bank of Canada, the central bank of Canada.
Bank of England, the central bank of the United Kingdom.
Bank of Japan, the central bank of Japan.
Typically corporate or governmental, a bond is a fixed income instrument that represents a loan made by an investor to a borrower.
The price at which a position generates neither a profit nor a loss.
A person or firm acting as an agent in a securities transaction.
A person or company that engage in the business of buying and selling securities for others and for itself.
Confirmation of a trade where no trade has actually been executed.
An optimistic outlook on the price of an asset.
Bull Call Spread
The simultaneous purchase of a call option and sale of a call option with a higher exercise price on the same underlying asset and with the same expiration for a net debit.
A bull market is one in which prices have been rising or are expected to rise.
Bull Put Spread
The simultaneous purchase of a put option and sale of a put option with a higher exercise price on the same underlying asset and with the same expiration for a net credit.
An order to purchase a specific quantity of an asset.
Also referred as excess equity, it is the maximum dollar value of securities an investor can buy without depositing additional equity.
A buyout is the acquisition of more than 50% of a company, leading to a change of control.
The right to buy, and lock in a purchase price, is referred to as a call option as the call buyer has the right to call the underlying asset from the call writer (seller) during the life of the contract.
Refers to a person who sells a call and receives a premium.
It’s a payment made by a company to the stockholders out of its earnings in the form of cash.
The Chicago Board of Options Exchange
The Chicago Board of Trade, a futures exchange.
Excessive trading in a client's account in order to generate more commissions.
Measures use by an exchange to stop trading after a security or an index has fallen by a certain percentage. They are designed to prevent panic selling.
Clearing brokers help ensure that trades are successfully completed by acting as a liaison between an investor and a clearing house.
An organization that takes care of financial settlement and helps ensure that markets operate efficiently. Clearinghouses can be set up either as a separate corporation or as a department of an exchange. The primary functions of a clearinghouse are to guarantee financial performance of each contract, clear all trades and handle delivery.
A fund with a fixed number of shares outstanding. The shares are bought and sold on a stock exchange instead of being issued and redeemed the way a typical mutual fund does.
The last price at which a security is traded at the end of a day’s business.
Chicago Mercantile Exchange, the second largest world exchange for futures and options on futures.
The purchase or sale of both calls and puts having different strike prices and the same expiration dates (also known as strangle)
The fee paid to a broker to execute a trade, based on the number of shares and/or their dollar value.
A market where the forward or futures price is higher than the spot price. For commodity futures contracts, contango markets are considered normal as there is typically a cost to carrying or holding a commodity.
Two or more orders that are related and are to be executed simultaneously.
The month in which a securities contract expires.
The amount of an underlying asset for delivery covered by an option contract. The contract size is typically 100 shares per contract for options.
The narrowing of the basis as a futures contract nears expiration.
A long underlying position combined with a short call and a long put.
Cost of carry
Term associated with the cost of holding a commodity or financial asset until it is sold or delivered. The cost of holding a commodity typically includes financing, storage and insurance charges. The cost of holding a financial asset typically includes financing costs less income received such as dividends for stocks and interest for debt instruments.
A short call combined with:
i) a corresponding quantity of the underlying interest, or ii) a security convertible into at least an equivalent quantity of the underlying interest, or iii) an equivalent number of calls on the same underlying interest with an expiration equal to or longer than that of the written call.
A short put combined with:
i) a short position in an equivalent amount of the underlying interest, or ii) a long position in an equivalent number of puts on the same underlying interest with an expiration equal to or longer than that of the written put.
Covered Put Sale
The simultaneous sale of a put option and the short sale of an equivalent number of the underlying security.
The Consumer Price Index is a measure of retail inflation. It is calculated by comparing the prices of a set basket of goods and services as bought by a typical consumer.
Abbreviation for Committee on Uniform Security Identification Procedures number is an identification assigned to all stocks with a unique nine-character number in the U.S. and Canada.
Private exchanges or financial forums for trading securities without exposure until after the trade has been executed.
Daily Price Limit
In a futures contract, the maximum amount the price is allowed to rise or fall in one day.
An order to buy or sell stock that automatically expires if it can't be executed on the day it is entered.
A type of speculator whose time horizon is a single day.
An unsecured bond backed solely by the general credit of the borrower rather than by specific assets.
Financial instruments created by market participants so that they can trade and/or manage more easily the asset upon which these instruments are based. Their values are derived solely from an underlying interest which may be a commodity such as wheat or a financial product such as a bond or stock, a foreign currency, or an economic/stock index.
A long call (put) and short call (put) with different exercise prices and expiration dates.
Dividends Per Share (DPS)
Dividends paid for the past 12 months divided by the number of common shares outstanding.
Dividend Reinvestment Plans (DRP)
It is a plan offered by a company to the shareholders. Instead of receiving the dividends in cash, it is directly reinvested in the underlying equity.
The data or policy view that suggests easier monetary policy or lower interest rates.
Earnings Per Share (EPS)
It is the company’s profit divided by the number of outstanding shares of its common stock and serves as an indicator of the company’s profitability.
Abbreviation for exchange-traded fund, which is a basket of stocks meant to track an index or sector.
A U.S dollar deposit in a bank outside of the U.S. The bank could either be a foreign bank or a branch or a subsidiary of a U.S bank.
A type of option that can only be exercised at expiration.
Exchange For Physicals (EFP)
A transaction generally used by two hedgers who want to exchange futures for cash positions.
It indicates shares that have been bought without the right to receive the dividend.
The process of completing a buy or a sell order. (Fill)
The price at which an underlying security can be bought or sold if an option contract is exercised. Also know as the strike price.
The date on which a derivative contract becomes void.
Exchange Traded Fund (ETF)
An investment fund or basket of securities traded on stock exchanges.
The value of a bond that appears on the face of the certificate. It is usually the maturity value of the bond and is not an indication of current market value.
The Federal Reserve Bank, the central bank of the United States.
Fill or Kill Order
An order that stipulates that as soon as that portion of the order which can be executed (if at all) is completed, any remaining portion of the order that is not filled is cancelled.
First Notice Day
The first day that the futures contract delivery process begins. Long position holders who maintain their positions on and after first notice day may have to accept delivery of the underlying asset from the seller of the contract.
Federal Open Market Committee, the policy-setting committee of the US Federal Reserve.
This term refers to the foreign currency cash market which is a global decentralized (or over-the-counter) market to facilitate the trading of currencies.
In a forward transaction, two parties agree to terms of a trade which is to be carried out some time in the future. The buyer does not pay the agreed upon price right away, nor does the seller deliver the underlying interest. Payment and delivery take place at a specified date in the future, known as the delivery date. The delivery price is agreed upon when the contract is entered into. Forwards that trade on an exchange are typically referred to as futures contracts.
Forwards that trades OTC are typically referred to as forward agreements.
Trading ahead of a client’s order in the same related security with full knowledge of the client’s trading instructions.
The study of an asset’s current and expected supply and demand situation in order to help forecast future price movements.
A forward-based derivative that trades on an exchange.
The last trading day of futures contract.
Good 'Til Canceled
Sometimes simply called "GTC", it means an order to buy or sell stock that is good until you cancel it.
GTC is the abbreviation for the order type Good Til Canceled.
The belief that higher interest rates are needed to combat inflation and/or restrain rapid economic growth.
A term commonly used to describe lightly regulated pools of capital that have great flexibility in their choice of investment strategies.
An attempt to reduce risk by making transactions that reduce exposures to market fluctuations. Hedging with derivatives involves taking an opposite position in the derivative instrument of the asset to be hedged (or one that is very close to it) that is equal in size.
A usually large order which is submitted while publicly disclosing only a portion of it at the time.
The volatility implicit in an option’s premium.
Initial Public Offering (IPO)
When a company issues securities for the first time.
For a call option, intrinsic value is calculated by subtracting the exercise price from the market price. For a put option, intrinsic value is calculated by subtracting the market price from the exercise price. For both calls and puts, intrinsic value cannot be less than zero.
Describes an option with intrinsic value; a call option where the strike price is below the market price of the underlying; a put option where the strike price is above the market price of the underlying.
Inverted Market (or Backwardation)
A commodity market where the forward or futures price is lower than the cash or spot price. Also known as backwardation. Inversions occur in commodity futures market largely due to low near-term supply or high demand of the physical commodity, relative to forward supply and demand.
Last Notice Day
The final day on which a clearing house notices of intent to deliver on futures contracts may be issued.
Last Trading Day (Options)
The last business day before an option's expiration date during which represents the final opportunity to trade the contract. For equity options, this is generally the third Friday of the expiration month. If the third Friday of the month is an exchange holiday, the last trading day is the Thursday immediately preceding the third Friday.
The ability to control large dollar amounts of an underlying interest with comparatively small amount of capital. Leverage can greatly magnify the effect of price changes in an underlying interest.
The London Inter-Bank Offered Rate is the benchmark rate for cash balances in numerous currencies at which major global banks lend to one another for short-term loans.
An order to buy or sell at a specific price (or better if available).
Amount that can be used as collateral against money owning.
The most basic option strategy in which an investor buys a call option based on the belief that the price of the underlying will rise over the strike price before the option expiration date.
The most basic option strategy in which an investor buys a put option based on the belief that the price of the underlying will fall below the strike price before the option expiration date.
An amount of money deposited by both buyers and sellers of futures contracts to ensure performance of the terms of the contract (the delivery or taking of delivery of the commodity or offset of the contract). Margin is not a payment of equity, merely a performance bond or good faith deposit.
Calculated as the margin requirement less any cash or loan value in the account; issued by a member firm to a client to request additional margin to bring the account on side; can be met with a deposit of cash, fully-paid for securities; or any combination thereof.
The amount of margin required for specific positions or strategies or combinations thereof.
A legitimate spread for margin purposes; the short side of the spread expires on or before the long side of the spread.
The market's ability to sustain large securities orders without significantly impacting the price of the security.
Market makers role is to provide liquidity, add depth to the order book and minimize volatility by ensuring that there is a continuous two-sided market with a reasonable spread for their stock(s) of responsibility by posting bids and offers as necessary.
An order to buy or sell a specific security at the best available price.
The process in a futures market in which the daily price changes are paid by the parties incurring losses to the parties earning profits.
A long position in an underlying interest combined with a long put.
Derivative contracts representing a fraction (typically 1/5 or 1/10) of a standard futures or options contract.
Naked Call or Put
Is an option strategy in which a speculator writes (sell) a call or a put without owning the underlying security.
The New York Stock Exchange.
It is the total number of outstanding options or futures contracts that have not been settled for an asset. It gives a picture of the trading activity,
A derivative instrument that gives the purchaser the right, but not the obligation to, buy or sell an underlying asset at a certain price (exercise price) on or before an agreed upon date. For this right the purchaser pays a premium to the seller (writer) of the option. The writer as an obligation, if called upon to do so by the purchaser, to buy, in the case of puts, or sell, in the case of calls, at the exercise price.
The required deposit when a futures contract is entered into.
A call option is considered out-of-the-money if the market price of the underlying asset is lower than the exercise price. A put option is considered out-of-the-money if the market price is higher than the exercise price.
Over-The-Counter Market (OTC)
A market that generally consists of a loosely connected network of brokers and dealers who negotiate transactions directly with one another primarily over telephone lines and/or computer terminals.
The price of an option
The market in which firms sell new stocks or bonds directly to the public for the first time.
An option that gives the holder the right to sell stock at a specific price.
A person who sells a put and receives a premium.
The settlement price is determined at the end of each trading day by the “Pit Committee” of the exchange. The price usually represents the average of futures prices for trades made toward the end of the day.
A position that is opened by selling borrowed stock, with the expectation the stock price will fall.
The price of an asset on the spot market (cash market).
The purchase and sale of calls or puts; may be classified as price, time or diagonal spreads depending on the strike price and expiration of the individual components.
The purchase or sale of both calls and puts having the same strike price and the same expiration.
A market order to buy or sell that is triggered when the security trades at a certain price.
A limit order to buy or sell that is triggered when the security trades at a certain price
See exercise price
The study of past price and volume data in order to anticipate future market movements.
Term use to indicate the minimum price movement, or minimum price change, in a security.
Ticker or Ticker Symbol
An arrangement of unique letters used to identify a specific listed security.
The premium of the option less it’s intrinsic value.
The size of the asset underlying the derivative contract. All North American-listed equity options, for example, have a trading unit of 100 shares of the underlying stock.
Trailing Stop Order
A Trailing Stop sell order sets a stop price at a fixed amount or percentage below or above the market price and work as an exit strategy.
A statistical measure of how much a given security or market index fluctuated during a given time period.
An investor who sells an option as an opening transaction. The writer may be obligated to either buy (put option) or sell (call writer) the underlying asset if called upon to do so by the option buyer.