A non-exhaustive list of terms you will hear in the office, on the desk, or in an interview.
The excess return of an investment relative to the return of a benchmark index. In trading, 'finding alpha' means finding a strategy that beats the market.
The simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms.
The process of testing a trading strategy on relevant historical data to ensure its viability before risking any actual capital.
A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.
The collection of all outstanding buy (bid) and sell (ask) orders for a particular asset, organized by price level.
Hosting trading servers in the same physical data center as the exchange's matching engine to minimize network latency.
A 'Greek' that represents the ratio comparing the change in the price of an asset, usually a marketable security, to the corresponding change in the price of its derivative.
A financial security with a value that is reliant upon or derived from an underlying asset or group of assets. The derivative itself is a contract between two or more parties based upon the asset or assets.
Electronic trading facilities that give investors a way to interact directly with the order book of an exchange.
A type of pooled investment security that operates much like a mutual fund. typically, ETFs will track a particular index, sector, commodity, or other assets.
A keyboard input error on a financial market such as the stock market or foreign exchange market whereby an order to buy or sell is entered in far greater size than intended, for the wrong stock or contract, at the wrong price, or with any number of other input errors.
The action of a market order being matched with a limit order.
A derivative financial contract that obligates the parties to transact an asset at a predetermined future date and price.
A 'Greek' that measures the rate of change in the Delta with respect to changes in the underlying price.
An alternative investment vehicle that pools capital from accredited investors or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk management techniques.
A method of trading that uses powerful computer programs to transact a large number of orders in fractions of a second.
A metric that captures the market's view of the likelihood of changes in a given security's price.
The time delay between the moment a signal is sent and when it is received. In HFT, lower latency (measured in microseconds or even nanoseconds) is a competitive advantage.
The efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.
A firm or individual who actively quotes two-sided markets in a security, providing bids and offers (known as asks) along with the market size of each.
The core software of an exchange that matches buy and sell orders.
The study of the market mechanism and trading rules that affect the price formation process. It deals with issues like liquidity, transaction costs, and information asymmetry.
A financial derivative that represents a contract sold by one party (the option writer) to another party (the option holder).
The process of how securities are traded for companies that are not listed on a formal exchange. OTC is decentralized.
Profit and Loss. The total amount of money made or lost in a trading period.
A financial firm that invests the firm's own capital instead of that of clients, to generate a profit.
A professional who uses quantitative methods to help companies make business and financial decisions.
A measure that indicates the average return minus the risk-free return divided by the standard deviation of return on an investment.
The amount by which the ask price exceeds the bid price for an asset in the market.
A participant who agrees to buy or sell at the prices currently offered in the order book, removing liquidity.
A 'Greek' that measures the rate of decline in the value of an option due to the passage of time. Also known as time decay.
The minimum upward or downward movement in the price of a security.
A 'Greek' that measures the risk of gain or loss in a portfolio to changes in volatility.
A trading benchmark used by traders that gives the average price a security has traded at throughout the day, based on both volume and price.
A mathematical representation of a situation in which each participant's gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants.