Quant Glossary
Master the vocabulary of Wall Street's smartest firms. From "Arbitrage" to "Zero-Sum Game".
Arbitrage
The simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset's listed price.
Liquidity
The efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.
Market Maker
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.
Derivative
A financial security with a value that is reliant upon or derived from an underlying asset or group of assets.
Futures
Derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price.
Options
Financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date.
Black-Scholes Model
A mathematical model for pricing an options contract. It estimates the variation over time of financial instruments.
Delta Hedging
An options strategy that aims to reduce, or hedge, the risk associated with price movements in the underlying asset by offsetting long and short positions.
Quantitative Analysis
The use of mathematical and statistical methods (mathematical finance) in finance and investment management.
Algorithmic Trading
A method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume.
Proprietary Trading
When a financial firm or commercial bank trades stocks, bonds, currencies, commodities, derivatives, or other financial instruments with its own money, rather than using clients' money.
Implied Volatility
A metric that captures the market's view of the likelihood of changes in a given security's price.
Sharpe Ratio
A measure that indicates the average return minus the risk-free rate divided by the standard deviation of return on an investment.
Latency
The time delay between the initiation of a request and the receipt of a response. In trading, the time it takes for an order to reach the exchange.
Order Book
An electronic list of buy and sell orders for a specific security or financial instrument organized by price level.
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