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Financial Glossary

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  • American Style Option
    An option that can be exercised at any time on or before its expiration date.
  • Ask Price
    The price at which a seller is offering to sell an option or a stock.
  • Asset
    Underlying financial instrument used to determine the strike price of the contract. They are generally categorised as commodities, stocks, currency pairs or indices.
  • At The Money
    A term that describes an option with a strike price that is equal to the current market price of the underlying stock.
  • Averaging Down
    Buying more of a stock or an option at a lower price than the original purchase so as to reduce the average cost.
  • Bearish
    An adjective describing the opinion that a stock, or a market in general, will decline in price.
  • Bid Price
    The price at which a buyer is willing to buy an option or a stock.
  • Binary Options
    Options which allow traders to earn a fixed amount if they correctly predict whether the value of the underlying asset will reach above or below the strike price when it expires. If traders incorrectly predict the direction of the asset’s value, they lose their investment.
  • Black-Scholes Formula
    The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.
  • Break Even Point(s)
    The stock price(s) at which an option strategy results in neither a profit nor a loss. While a strategy's break-even point(s) are normally stated as of the option's expiration date, a theoretical option pricing model can be used to determine the strategy's break-even point(s) for other dates as well.
  • Broker
    A person acting as an agent for making securities transactions. An 'Account Executive' or a 'broker' at a brokerage firm deals directly with customers. A 'Floor Broker' on the trading floor of an exchange actually executes someone else's trading orders.
  • Broker Ratings
    Buy, sell, or hold recommendations or ratings given to individual company stocks by securities analysts, depending on how they think the stock will perform in the short- or long-term.
  • Bullish
    An adjective describing the opinion that a stock, or the market in general, will rise in price.
  • Buy
    You ‘buy’ a market if you think it will rise (if you are opening a new bet). You also ‘buy’ to close out an existing ‘sell’ bet.
  • Cable
    Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted between the London and New York exchanges via the transatlantic telegraph cable in the mid-1800s.
  • Call Option
    It is one of the two option choices. If a trader believes that the value of the underlying asset will reach a higher value at the time of expiry, then they can purchase a call option.
  • Carry Trade
    An investor sells a certain currency with a low interest rate and uses the funds to purchase a different currency at a higher interest rate, thus capturing the difference, or profit, between the two rates.
  • Cash Settlement Amount
    Settlement of a futures contract in cash rather than in the physical asset underlying the contract.
  • CBOE
    The Chicago Board Options Exchange
  • CBOT
    Chicago Board of Trade
  • Central Bank
    A government or quasi-governmental organisation that manages a country's monetary policy. For example, the US Central Bank is the Federal Reserve, and the German Central Bank is the Bundesbank.
  • Charts
    Visual representations of raw data. Investors can learn to spot recurring patterns on financial charts to help them make informed decisions about a market or a company.
  • Class of Options
    A term referring to all options of the same type, either calls or puts, covering the same underlying stock.
  • Closing
    The process of ending an existing trade. Closing a trade results in a profit or loss being realised.
  • Closing Price
    The final price of a security at which a transaction was made.
  • CME
    Chicago Mercantile Exchange
  • COMEX
    Commodity Exchange Inc, New York
  • Commodity
    A basic good used in commerce which is usually uniform across producers and can be traded on an exchange. Soft commodities are goods that are grown, such as coffee and sugar, while hard commodities are extracted through mining, such as gold and coal.
  • Contract Size
    The quantity of goods or commodities underlying futures, forward and option contracts. Most equity options have a contract size of 100 shares.
  • Cover
    An act of lowering risk exposure by closing an open position. This term is used most frequently to describe the purchase of an option or stock to close out an existing downwards position for either a profit or loss.
  • Credit
    Money received in an account either from a deposit or a transaction which increases the account's cash balance.
  • Crude Oil (& WTI)
    The unrefined state of petroleum, Crude Oil is one of the world’s most important and well-traded commodities. WTI or West Texas Intermediate is a type of low sulphur crude oil or sweet crude, used as an oil benchmark or marker.
  • CSCE
    Coffee, Sugar and Cocoa Exchange
  • Currency Pair
    The two currencies that comprise a Forex rate. A Forex rate is the amount that the first currency in the pair is worth expressed in terms of the second currency.
  • Day Trade
    A position (stock or option) that is opened and closed on the same day.
  • Delta
    A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying stock.
  • Deposit
    The funds required as an initial outlay for a trade. It is not the total amount that can be lost on the trade.
  • Depreciation
    A fall in the value of an asset.
  • Digital Option
    Another name used for a binary option. It has fixed payout and fixed loss.
  • Discount
    An adjective used to describe an option that is trading at a price less than its intrinsic value.
  • Discretion
    Freedom given by an investor to his floor broker or Account Executive to use his own judgment regarding the execution of an order.
  • Down Trade
    A trade backing a particular price to fall.
  • Downtrend
    A price trend characterised by a series of lower highs and lower lows.
  • Economic Indicator
    A statistic that indicates current economic growth and stability, or the lack of it. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.
  • Equity
    Ownership, or what a person, company or account has to its name.
  • Equity Option
    An option on shares of an individual common stock or exchange traded fund.
  • EUREX
    European Exchange, Frankfurt
  • European Central Bank (ECB)
    The Central Bank for the new European Monetary Union
  • European Style Option
    An option that can be exercised only on its expiration date and not before.
  • Exercise Price
    The price at which the owner of an option can purchase (Call) or sell (Put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.
  • Exotic Options
    These are types of options used exclusively by big time traders before they were available to the public. Binary options are simplified versions of exotic options.
  • Expiration Cycle
    The calendar cycle of expiration months that is assigned to basic exchange-traded stock options. Although some options have contracts in every month, most equity options are traded with expiration months in every quarter.
  • Expiration Date
    The date at which an option and the right to exercise it cease to exist.
  • Expiry Price
    The price of the asset when the contract expires. In binary trading, an option is determined as either in-the-money or out-of-the-money based on the expiry price of the underlying asset.
  • Federal Reserve (FED)
    The Central Banking system for the United States.
  • Fill
    The execution of an order.
  • Fill or Kill Order (FOK)
    A type of option order which requires that the order be executed completely or not at all. If the order cannot be completely executed (i.e., filled in its entirety) as soon as it is announced in the trading crowd, it is to be 'killed' (i.e., cancelled) immediately.
  • Financial Industry Regulatory Authority (FINRA)
    The Financial Industry Regulatory Authority (FINRA), is the largest independent regulator for all securities firms doing business in the United States.
  • FINEX
    Financial Instrument Exchange, New York
  • Fiscal Policy
    The use of government spending and taxation to influence macroeconomic conditions.
  • Fixed Income
    When an investment yields a regular or fixed return.
  • Floor Broker
    A trader on an exchange floor who executes trading orders for other people.
  • Floor Trader
    An exchange member on the trading floor who buys and sells for his or her own account.
  • Foreign Exchange (FX or Forex)
    The simultaneous buying of one currency and selling of another.
  • FTSE
    The FTSE 100, 250 and 350 are the best-known stock indices in the UK and are used primarily to bench mark the performance of UK companies by market capitalisation. The constituent companies within each index are calculated quarterly. Informally known as the ‘Footsie’, the indices are maintained by FTSE Group, which is jointly owned by the Financial Times and the London Stock Exchange.
  • Fundamental Analysis
    One of the major types of analysis used when trading to predict stock prices. Traders analyse companies by taking into account sales, earnings, products or services, and analyse the economy by taking into account factors like GDP, interest rates and unemployment. This differs from technical research, which uses past prices and trading to predict future prices.
  • Future (Forwards)
    A future or forwards rate is notionally an agreement to conduct a transaction at some specified time in the future where the price is agreed now. Often the price of a future or forwards bet will differ from the cash price.
  • Gap
    The phenomenon of a market trading at a price away from the previous traded price without trades occurring at intervening prices. Usually, but not necessarily, relates to when a market resumes trading after a period of closure.
  • GDP
    Gross Domestic Product, the total value of all final goods and services produced by the economy. A key measure of national income and output for a country's economy.
  • Hedge (Hedged Position)
    A position established with the specific intent of protecting an existing position. For example, an owner of common stock may buy a put option to hedge against a possible stock price decline.
  • Historic Volatility
    A measure of actual stock price changes over a specific period of time.
  • HKFE
    Hong Kong Futures Exchange
  • Holder
    Any person who has made an opening purchase transaction, call or put, and has that position in a brokerage account.
  • Illiquid Market
    In an illiquid market, a small amount of business often moves prices by a disproportionate amount, and bid and offer prices can be far apart.
  • In-the-money
    This is a term used to describe when an investor reaches a position when they realise profit. A call option is in the money if the expiry price is above the strike price. A put option is in the money if the expiry price is below the strike price.
  • Index
    A compilation of several stock prices into a single number, for example, the S&P 100 Index.
  • Index Option
    An option whose underlying interest is an index. Generally, index options are cash-settled.
  • Individual Volatility
    The volatility percentage that justifies an option's price. A theoretical option pricing model can be used to generate an option's individual volatility when the quantifiable factors (stock price, time until expiration, strike price, interest rates, and cash dividends) are entered along with the price of the option itself.
  • Institution
    A professional investment management company. Typically, this term is used to describe large money managers such as banks, pension funds, mutual funds, and insurance companies.
  • Instrument
    Another term used for assets.
  • Interest Rate Futures
    Interest rate futures allow you to take a view on all the main interest rate contracts, including Short Sterling, Gilt, Bund, Eurodollar, JGB and T-Bond. With short-term interest rate contracts, you can bet on the direction of a country's three-month interest rates. This means that if you think short-term interest rates will fall, you 'buy' and if you think rates will rise, you ‘sell’.
  • Investment Amount
    This is the amount of money used to purchase the binary options contract. It is the money at stake for a put or call option.
  • IPE
    International Petroleum Exchange, London
  • ISE
    International Securities Exchange
  • Last Dealing Time
    The last time (on the last dealing day) you may trade on a particular market.
  • Last Trading Day
    The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month.
  • LIFFE
    London International Financial Futures Exchange
  • Liquidity (Liquid Market)
    A trading environment characterised by high trading volume, a narrow spread between the bid and ask prices, and the ability to trade larger sized orders without significant price changes.
  • Listed Option
    A put or call traded on a national options exchange. In contrast, over-the-counter options usually have non-standard or negotiated terms.
  • LME
    London Metal Exchange
  • LSE
    London Stock Exchange
  • Margin (Margin Requirement)
    The minimum equity required to support an investment position. To buy on margin refers to borrowing part of the purchase price of a security from a brokerage firm.
  • Mark To Market
    An accounting process by which the price of securities held in an account are valued each day to reflect the closing price or market quote. As a result the equity in an account is updated daily to properly reflect current security prices.
  • Market Maker
    An exchange member on the trading floor who buys and sells options for his or her own account and who has the responsibility of making bids and offers and maintaining a fair and orderly market.
  • Market Maker System
    A method of supplying liquidity in options markets by having market makers in competition with one another. They are similarly charged with making fair and orderly markets in a given class of options.
  • Market Quote
    A quotation of the current best bid / ask prices for an option or stock. This information is usually obtained by the investor from someone at a brokerage firm. However, for listed options and stocks, these quotes are widely disseminated and available.
  • Model
    A mathematical formula used to calculate the theoretical value of an option.
  • Monetary Policy
    The procedures by which a government or central bank seek to affect macroeconomic conditions by influencing the supply and availability of money.
  • MSE
    Milan Stock Exchange
  • Multiple Listed (Multiple Traded Option)
    Any option contract that is listed and traded on more than one national options exchange. NASDAQ A key index, this was the world's first electronic stock market, and is traditionally home to many high-tech stocks such as Microsoft, Intel, Dell and Cisco.
  • Neutral
    An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
  • NYFE
    New York Futures Exchange
  • NYMEX
    New York Mercantile Exchange
  • NYSE
    New York Stock Exchange
  • NYSE AMEX
    American Stock Exchange
  • Offer / Offer Price
    In the options business this means the same as ask / ask price, or the price at which a seller is offering to sell an option or a stock.
  • OMLX
    London Securities and Derivatives Exchange
  • One Cancels Other Order (OCO)
    An order stipulating that if one part of the order is executed, then the other part is automatically canceled. Can be useful for investors with limited funds.
  • Open Interest
    The total number of outstanding option contracts for a given underlying stock.
  • Opening Transaction
    An addition to, or creation of, a trading position. An opening purchase transaction adds call options to an investor's total position, and an opening sale transaction adds put options.
  • Option
    A contract that gives the owner the right, but not the obligation, to buy or sell a particular asset at a fixed price, the strike price, for a specific period of time until expiration.
  • Option Period
    Sometimes referred to as an option's lifetime, this is the time from when an option contract is created by a writer of that option to the expiration date.
  • Option Pricing Curve
    A graphical representation of the estimated theoretical value of an option at one point in time, at various prices of the underlying stock.
  • Option Pricing Model
    The first widely-used model for option pricing is the Black Scholes. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.
  • Optionable Stock
    A stock on which listed options are traded.
  • Options Clearing Corporation (OCC)
    A registered clearing agency whose shares are owned by the exchanges that trade listed equity options, OCC is an intermediary between option buyers and sellers. OCC issues and guarantees all listed option contracts.
  • OSE
    Osaka Securities Exchange
  • Out-of-the-money
    This is a term used to describe when an investor reaches a position where they experience loss. A call option is out-of-the-money if the expiry price is below its strike price. A put option is out of the money if the expiry price is above its strike price.
  • Over The Counter (Over The Counter Market)
    A national association having many characteristics of an exchange. Rather than a floor or physically central market place, trading takes place via computer terminals.
  • Owner
    Any person who has made an opening purchase transaction, call or put, and has that position in a brokerage account.
  • Parity
    When an option's theoretical value is equal to its intrinsic value, it is said to be ‘worth parity’. When an option is trading for only its intrinsic value, it is said to be ’trading for parity’. Parity may be measured against the stock's last sale, bid, or offer.
  • Payout
    The profit realised when the contract expires in-the-money. Banc De Binary typically offers a 70% - 91% payout.
  • Pip
    A ‘Percentage In Point’ is generally the fourth decimal place, i.e. 0.0001. Traditionally, a pip was the smallest point by which a Forex rate could move, although with modern advances in precision this is no longer the case.
  • Point
    The increment in price movement that results in you making or losing your trade size.
  • Position
    The combined total of an investor's open option contracts (calls and / or puts) and long or short stock.
  • Position Trading
    An investing strategy in which open positions are held for an extended period of time.
  • Profit / Loss Graph
    A graphical presentation of the profit and loss possibilities of an investment strategy at one point in time, at various stock prices.
  • Put Option
    It is one of the two option choices. If a trader believes that the value of the underlying asset will drop to a lower value at the time of expiry, then they can purchase a call option.
  • Quote
    The two-way market price that a broker makes for a given instrument. Since it is two-way, you can buy or sell, according to whether you think the price will rise or fall.
  • Realised Gains & Losses
    The net amount received or paid when a closing transaction is made and matched together with an opening transaction.
  • Resistance
    A term used in technical analysis to describe a price area at which rising prices are expected to stop or meet increased selling activity. This analysis is based on historic price behavior of the stock.
  • Risk
    Exposure to uncertain change, most often used with a negative connotation of adverse change.
  • Risk Management
    If you are new to trading it is possible to make substantial losses as well as substantial profits. You can manage your risks via controlled risk trades, making it possible to put an absolute limit on potential losses.
  • Rolling
    A trading action in which the trader simultaneously closes an open option position and creates a new option position at a different strike price, different expiration, or both.
  • Rollover
    The procedure whereby a trade approaching expiry is closed and a trade of the same size and direction is opened for the next period, thereby prolonging the exposure to a particular market.
  • Running Profit & Loss
    How your open trades are doing: the unrealized money that you would gain or lose on your open trades if they were closed at prevailing market prices.
  • SAF
    South African Futures Exchange
  • SEC
    The Securities and Exchange Commission. The SEC is an agency of the federal government which is in charge of monitoring and regulating the securities industry.
  • Sector
    The name for a group of securities or companies in the same market or industry.
  • Sell
    You 'sell' a market if you think it will fall (if you are opening a new trade). You also 'sell' to close out an existing 'buy' trade.
  • SFE
    Sydney Futures Exchange
  • SGX
    Singapore Exchange
  • Shares
    A unit of ownership, usually in a corporation, that entitles the owner to a share of profits in the form of a dividend.
  • Slippage
    The difference between the level of a Stop order and the actual price at which it was executed. Can occur during periods of higher volatility when market prices move rapidly or gap.
  • SOFFEX
    Swiss Options and Financial Futures Exchange
  • Spot
    The price for a currency, index, commodity or share for immediate settlement or delivery.
  • Standard Deviation
    A statistical measure of price fluctuation. One use of the standard deviation is to measure how stock price movements are distributed about the mean.
  • Stock Index
    A compilation of a number of stocks into one total price, expressed against some base value from a specific date, thus allowing investors to easily follow the performance of certain groups of stocks.
  • Strike (Strike Price)
    The price at which the owner of an option can purchase (call) or sell (put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.
  • Support
    A term used in technical analysis to describe a price area at which falling prices are expected to stop or meet increased buying activity. This analysis is based on previous price behavior of the stock.
  • Technical Analysis
    A method of predicting future stock price movements based on the study of historical market data such as (among others) the prices themselves, trading volume, open interest, the relation of advancing issues to declining issues, and short selling volume.
  • Theoretical Value
    The estimated value of an option derived from a mathematical model.
  • Tick
    The smallest unit price change allowed in trading a security. For listed stock and options, this is generally 1/8th of a point. However for a listed option under $3 in price, this is normally 1/16th of a point.
  • Trader
    This refers to any investor who makes purchases and sales. It can be a member of an exchange who conducts his or her buying and selling on the trading floor of the exchange.
  • Trading Pit
    A specific location on the trading floor of an exchange designated for the trading of a specific option class or stock.

 

Confused by any of the industry terminology that you’ve read? Want to speak the lingo of our financial experts? From ‘asset’ to ‘resistance’ and from the ‘ECB’ to the ‘NYSE’, here are all the important terms and abbreviations relating to financial trading and binary options that you need to know. In Banc De Binary fashion, we have aimed to define and explain the terms as simply as possible. If you are looking for more detailed information, take a look instead at our educational trading articles.

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