Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

ADR
American Depository Receipt

Arbitrage
The simultaneous buying and selling of a security at two different prices in two different markets, with the aim of creating profits without risk

Ask
The quoted offer at which someone can buy; also called the offer price

At Par
At a price equal to the face value of a security

Auction
Many auctions occur in the financial markets; such as the post market auction on the UK 100. This occurs from 1630 to 1635, after which the official settlement is declared

Authority to deal
Authorising someone to spread bet on your behalf. For this City Index would require your written notification and we would perform an identity check

B

Backwardation
This occurs when the bid price exceeds the offer price for a stock. This is a market distortion usually when stock is suspended or under a share repurchase scheme

Base
A technical analysis tool. A chart pattern depicting the period when the supply and demand of a certain stock are in relative equilibrium, resulting in a narrow trading range. The merging of the support level and resistance level

Base Rate
The official lending rate at which the Bank of England offers to the market

Basis Point
Basis point is a way of expressing variations in bond yields. One basis point is 0.01 percentage point. Basis points also are used for interest rates

Bear
Someone who believes that prices in the stock market are going to decline. Opposite of a bull

Beta
The measure of an asset's risk in relation to the market

Bet Per
Same as tick size. The minimum point movement in each market, for example the UK 100 has moved 10 ticks this equates to a 10 index point move in the UK 100

Bid
The quoted price at which someone can sell

Bid-Ask Spread
The difference between what buyers are willing to pay and what sellers are asking for in terms of price

Black-Scholes option pricing model
A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return

Bollinger Bands
Plus or minus two standard deviations where the standard deviations are calculated historically in a moving window estimation. Hence, the bands will widen if the most recent data is more volatile. If the prices break out of the band, this is considered a significant move

Bond
Bonds are debt and are issued for a certain period of time

Bull
Someone who believes that prices in the stock market are going to rise. Opposite of a bear

Buy
Same as taking a long position

Buy Entry Limit
An order to buy at a price below the current market price.

Buy Entry Stop
An order to buy at a price above the current market price.

Buy Order
An instruction to buy at a different price to where the market is currently trading

C

Cable
A commonly used term to describe the exchange rate between British pound sterling and the U.S. dollar

Call option
An option that gives the holder the right to buy the underlying asset. Opposite of a put

Capital Gains Tax
Under current UK legislation, profits made via financial spread betting are free of CGT

Central Bank
The principal monetary authority of a nation, controlled by the national government. It is responsible for issuing currency; setting monetary policy, interest rates, and exchange rate policy; and regulation and supervision of the private banking sector. The Federal Reserve is the central bank of the United States. Others include the European Central Bank, Bank of England, and the Bank of Japan.

CFD
Contract for Difference

Chartist
Person who analyses markets with the use of charts

Closing Price
The price at which a product was traded to close the open position. Also refers to the price of the last transaction in a days trading session

Contingent if done order
Instructions you give us to attach a stop loss and/or limit order to your opening order if it is triggered and filled

Contracts for Difference:
A contract between two parties, buyer and seller, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time.

Contract Note
The confirmation of your trade describing the market, the unit of trading, the action (buy or sell), the price and the expiry date

Conversion:
The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

Cost of Carry
The interest intrinsic in our share futures prices, excluding any dividends payable during the contract period

Cover
The act of completing a transaction in order to remove any obligations.

CPI
Consumer Price Index, used as a measure of inflation

Cross Rates
Foreign exchange rate between two currencies other than the US dollar

Currency future
A financial future contract for the delivery of a specified foreign currency

D

Day Trading
Opening and closing of a position in the same contract in one day

Delist
To remove a stock's listing on an exchange

Deliver
The sale of a futures contract may require the seller to deliver the commodity during the delivery month, if the short position is not offset prior to that time

Delivery Date
Date by which a seller must fulfil the obligations of a forward or futures contract

Delta
The ratio of the change in price of an option to the change in price of the underlying asset

Derivative
A financial contract whose value is based on or derived from, a traditional security (such as a stock or bond), an asset or a market index

Devaluation
A deliberate downward adjustment to a country's official exchange rate relative to other currencies. When a nation devalues its currency, the goods it imports become more expensive, while its exports become less expensive abroad and thus more competitive. For example: There are two implications for a currency devaluation. First, devaluation makes a country's exports relatively less expensive for foreigners, and second, it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country's trade deficit.

Dividend
Portion of a company's earnings paid to stockholders. Clients who have buy positions in share contracts are not entitled to dividend payments

Double Witching Day
The last trading day before expiry of options and futures on the same underlying asset

Drawdown
The peak-to-trough decline during a specific record period of an investment or fund. It is usually quoted as the percentage between the peak-to-trough. For example: If a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader's account was never in a loss position from inception.

E

ECB
European Central Bank

EDSP
Exchange Delivery Settlement Price. Used by many markets to arrive at the Expiry Price

Entry Order
An order used to enter a trade once a specific security hits a pre-determined price level.

Entry Stop Order
An order initiating an open position to sell as the market falls, or buy as the market rises. The client believes that prices will continue to move in the same direction as the previous momentum after hitting the order level.

Expiry Date
Date at which a contract will be expired. Not to be confused with Last Day of Trading

Expiry Price
Price at which contracts are settled if they are left to expiry

F

Fair Value
Price at which theoretical future contracts should be trading above or below the leading future contract. Fair values for stock indices are determined by differentials in interest rates and dividend payments

Fast Market
Excessively rapid trading in a specific security that causes a delay in its electronic updating

Fill
Execution of an opening or closing order

Fixed exchange rate
A country's decision to tie the value of its currency to another country's currency, gold (or another commodity), or a basket of currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.

Foreign exchange (Forex)
The simultaneous buying of one currency and selling of another in an over-the-counter market.

Fundamental Analysis
Examination of a company's financials, assets, management, market niche, and products to determine value

Futures Contract
Trading contract that specifies a future date for delivery of an object

G

G-7
The seven leading industrial countries, being the United States, Germany, Japan, France, Britain, Canada, and Italy.

G-10
G7 plus Belgium, Netherlands and Sweden, a group associated with the IMF discussions. Switzerland is sometimes involved.

G-20
A group composed of the finance ministers and central bankers of the following 20 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States, and the European Union. The IMF and the World Bank also participate. The G-20 was set up to respond to the financial turmoil of 1997-99 through the development of policies that "promote international financial stability".

Gamma
The ratio of a change in the option delta to a change in the price of the asset on which the option is written

Gap
Where the market trades through a level specified by the client in an order. Market gaps are common during times of volatility. Guaranteed orders protect against gapping

Gearing
The use of debt to increase exposure to high risk/reward. Gearing is also known as leverage

Good till Canceled Order (GTC)
An order to buy or sell an asset that is good until you execute or cancel it.

Guaranteed order
For a small fee you can protect an order against the risk of any market gaps

H

Hedge
A transaction that reduces risk

I

Illiquid
A market that doesn't have much volume, usually characterised by wide bid-offer spreads. Illiquid markets are therefore expensive to trade.

IMM
International Monetary Market

Index Futures
A futures contract on an index in the futures market

Indicators
Indices, either positive or negative, which indicate the strength and significant trends in our nation's economy. Inflation, interest rates and employment figures are examples

Inflation
The rate at which the general level of prices for goods and services is rising

Initial Margin Requirement
Amount needed on deposit or credit in order to open a position. This can be reduced by placing a stop loss

IPO
Initial Public Offering. Private company's first offer of stock to the public

In-the-money Option
A put option that has a strike price higher than the underlying future price, or a call option with a strike price lower than the underlying futures price

Intrinsic Value
The value of an option if it were to expire immediately with the underlying stock at its current price

Issued Share Capital
Total amount of shares that have been issued

L

Lagging Indicators
Economic indicators that follow rather than precede a country's overall pace of economic activity

Last Day of Trading
The last day on which you can open or close a trade in a particular market. Not to be confused with Expiry Date

Leading Indicators
Economic indicators that change before the economy changes

Level Two
Live pricing system that provides market depth

Leverage
Leverage is also known as gearing.  Where a position can be taken in product with only a fraction of its value.

Liability
Debt, financial obligation, or potential loss

LIBOR
London Interbank Offer Rate. The standard for the interest rate that banks charge each other for loans (usually in Eurodollars). This rate is applicable to the short-term international interbank deposit market, and applies to very large loans borrowed from one day to five years. This market allows banks with liquidity requirements to borrow quickly from other banks with surpluses, enabling banks to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.

Limit order
Minimum selling or maximum buying price as instructed by the client. A limit order is an order to buy or sell a better price to where the market is currently trading

Limit up, limit down
Price change, up or down, a product is allowed to make during one day of trading

Liquidity
A market characterized by the ability to buy and sell with relative ease

Long
Opening a buy position in expectation that the market price will rise

M

Margin
The deposit or available credit needed on your account in order to have your positions open

Margin Call
A call from the credit department for further funds to be deposited in the account to support additional exposure from running losses

Market Capitalisation
The number of shares of a company in issue, multiplied by its share price

Market Maker
A dealer that supplies prices, and is prepared to buy and sell at those bid and ask prices.

Market Order
An order to buy or sell a currency pair, indices or commodity immediately at the best available current price.

N

Normal Market Size (NMS)
A system that categorizes the size of transactions that are normal for a particular security and forces market makers to deal within these sizes

O

Offer
The price offered at which someone can buy; also called the ask

One Cancels the Other (OCO)
OCO orders you can leave two separate opening orders in the same market so that if one of them is triggered and filled, the other is cancelled. This leaves you with just the one open position

Open position
A long or short position whose value will change with a change in prices

Option
A financial derivative instrument that gives the right to purchase (call) or sell (put) a fixed amount of stock at a specified price and within a certain time limit.

Option writer
Also called the option seller; the party who grants a right to trade a security at a given price in the future

Order
Buy or sell instruction given by a client to a dealer

Order Book
A term used for the SETS system employed in London. Orders to buy and sell are allowed to collect on an order book where they can match and execute against one another

Our Quote
The City Index dealing quote. Orders can be left based on our quote, meaning they will not be triggered or filled until the City Index buy or sell price hits the specific level

Out-of-the-money Option
A call option is out of the money if the strike price is greater than the market price of the underlying security. That is, you have the right to purchase a security at a price higher than the market price, which is not valuable

Overbought
A technical analysis term describing a situation where a security has risen to such a price, usually on high volume, that an oscillator has reached its upper bound. Technicians will suggest that a security that is overbought is at levels not technically justified; as a result it will be sold off and its price will decrease.

Oversold
A term used to describe a market or a stock that has declined so rapidly and has generated such excessively bearish sentiment that a near-term rally is highly likely.

P

Partial Fill
Where the client has specified that they wish only part of their stake filled on a closing order

Par Value
Face value of a security

Pip (tick)
The smallest denomination that a currency can make. For example: The smallest move the USD/CAD currency pair can make is $0.0001, or one basis point.

Portfolio
A collection of investments, real and/or financial

Power of Attorney
Authorising someone to spread bet on your behalf. For this City Index would require your written notification and we would perform an identity check. Same as Authority to deal

Put Option
A financial derivative instrument used in options trading. A put would give an investor the right, but not the obligation, to sell the underlying instrument at a fixed price up to a predetermined date. The opposite of a put is a call

Q

Quote
A City Index quote will incorporate our spread which is the difference between the buying and selling price. Also see Our Quote

R

Real Time
A real-time stock or bond quote is one that states a security's most recent price as opposed to a delayed quote. City Index dealing prices update in real-time

Resistance Level
A price level above which it is supposedly difficult for a security or market to rise

Retail Investor
Small individual investors who commit capital for their personal account rather than on behalf of another

Rights Issue
A privilege allowing existing shareholders to buy shares shortly before they are offered to the public at a specified and usually discounted price and usually in proportion to the number of shares already owned. Such corporate actions mean that City Index will adjust any position accordingly

ROCE
Return On Capital Employed

Rollover
Transferring a trade that is near expiry into the next contract period

S

SEC
Securities and Exchange Commission

Sector
Used to characterize a group of securities that are similar with respect to industry

Sell
Same as taking a short position

Sell Entry Limit
An order to sell at a price above the current market.

Sell Entry Stop
An order to sell at a price below the current market.

Settlement Price
A figure determined by the closing price

Short
Opening a sell position in expectation that the market price in that underlying product will fall

Slippage
See Gap

Spot market
Market in which commodities are bought and sold for cash and immediate delivery

Spread
The difference between the buy and sell price

Stop Loss Order
An order to close a position at a particular level when the price moves against you

Stop Order
An opening or closing order to buy or sell at a worse price to where the market is currently trading

Straddle
Purchase or sale of an equal number of puts and calls with the same terms at the same time

Strangle
Buying or selling an out-of-the-money put option and call option on the same underlying instrument, with the same expiration. Profits are made only if there is a drastic change in the underlying instrument's price

Strike Price
The stated price per share for which underlying stock may be purchased or sold by the option holder upon exercise of the option contract

Support Level
A price level below which it is supposedly difficult for a security or market to fall. That is, the price level at which a market tends to stop falling because there is more demand than supply; can be identified on a technical basis by seeing where the market has stopped falling in the past

Suspended Trading
Temporary halt in trading in a particular security, in advance of a major news announcement or to correct an imbalance of orders to buy and sell

Swing Trading
Refers to a type of short term (one day to a couple of weeks) trading, triggered by technical analysis, for example, momentum

T

Takeover
Acquiring control of a corporation by stock purchase or exchange

Technical Analysis
Analysis of a financial market by charting its performance, using historical patterns, and focusing on trends

Tick Size
The minimum point movement in each market

Time to Maturity
The time remaining until a financial contract expires

Time Value
Portion of an option price that is in excess of the intrinsic value, due to the amount of volatility in the stock; sometime referred to as premium.  Time value is positively related to the length of time remaining until expiration

Trading Range
Range between the highest and lowest prices at which a stock is traded

U

Underlying Asset
The security or market that City Index prices are based on (derived from)

V

Variation Margin
Same as open P + L e.g. any running profit from an open position can be used as additional margin. Conversely, any running loss will need to be funded, especially if there is no stop loss in place

Volatile
Situation that changes rapidly or suffers from extreme fluctuations

W

Warrant
A derivative product that is a certificate  giving authority to the holder to buy securities at a certain price. Warrants are like call options, but with longer time spans - sometimes years

Working Order
An order that remains working until it is filled or cancelled