Securities that have been actively traded on a particular stock exchange during a particular period. Active stocks are characterized by high trading volumes and frequent price movements, which make them attractive for traders looking for opportunities in market trends.
The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange (LSE). Launched in June 1995 to replace the Unlisted Securities Market, AIM provides a platform for smaller, growing companies to raise capital and have their shares publicly traded without the significant costs and regulatory complexities associated with a full market listing.
An overview of Alternative Trading Systems (ATS), platforms that allow trading securities outside of traditional exchanges, under regulatory oversight.
An American Depositary Receipt (ADR) is a negotiable certificate issued by a U.S. bank representing shares in a foreign company traded on U.S. financial markets. ADRs offer U.S. investors a way to invest in overseas companies without dealing with foreign brokerage firms.
Arbitrage involves entering into financial transactions to obtain risk-free profits by leveraging differences in interest rates, exchange rates, or commodity prices between different markets.
An arbitrageur is a person or firm engaged in arbitrage, taking advantage of price differences of the same security in different markets. They attempt to profit from these discrepancies without exposing themselves to significant risk.
An asset bubble refers to the inflationary valuation of asset prices resulting from excess demand, often leading to a sudden market collapse.
Auction Market Preferred Stock (AMPS) refers to a type of preferred stock in which the dividend rate is reset at periodic intervals through a Dutch auction process, allowing for competitive bidding and market-based pricing.
The currency used as the basis for an exchange rate, where foreign currency rates are quoted per single unit of the base currency, commonly US dollars.
A bear market is a prolonged period during which investment prices fall and widespread pessimism causes the negative sentiment to be self-sustaining. A bear market typically describes a condition where security prices fall 20% or more from recent highs.
A bear market is a financial term used to describe a market where the prices of securities are falling or are expected to fall. This state of the market is often characterized by a decline of at least 20% from recent highs.
Below Par refers to a financial security, especially a bond, that is trading at a price lower than its face or nominal value.
In financial markets, the bid and asked prices represent the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to accept, respectively. The difference between these two prices is known as the spread.
The price at which a market maker is willing to buy shares, usually slightly lower than the market maker's offer price.
The 'Big Bang' refers to the major changes introduced on the London Stock Exchange (LSE) on 27 October 1986, aimed at deregulating and modernizing market operations.
Popular term for the New York Stock Exchange (NYSE), the largest stock exchange in the world by market capitalization.
A broker who buys bills of exchange, especially Treasury bills, from traders and sells them to banks and discount houses or holds them to maturity.
Black Monday refers to the stock market crash on October 19, 1987, when the Dow Jones Industrial Average (DJIA) plummeted 508 points, or 22.6%—the largest single-day percentage decline in history.
In risk management, a 'black swan' is a high-impact event that should not be regarded as impossible just because it is highly improbable. These events can disrupt markets and systems and are categorized by their extreme rarity, severe impact, and predictability in hindsight.
The Black-Scholes Option Pricing Model, developed by Fischer Black and Myron Scholes, is a mathematical model used to determine the fair value of options by incorporating factors such as volatility, interest rates, stock prices, exercise prices, and time until expiration.
A block refers to a large quantity of stock or a large dollar amount of bonds held or traded, typically defined as 10,000 shares or more of stock or $200,000 or more worth of bonds.
The term 'Bolsa' refers to a stock exchange in Spanish-speaking countries. Just like the term Bourse in French and Borsa in Italian, it traces back to the meaning 'purse'.
The Bombay Stock Exchange (BSE) is one of the largest and oldest stock exchanges in the world, providing a crucial platform for the trading of a wide array of market assets.
A bond broker is a financial professional who specializes in buying and selling bonds on behalf of clients. They execute bond trades on the floor of exchanges or trade corporate, U.S. government, or municipal debt issues over the counter, often acting for large institutional accounts.
Book-entry refers to the electronic system of recording ownership of securities instead of issuing physical certificates. This system facilitates easier and more secure transactions within financial markets.
A method of raising capital where a company sells new shares to an underwriter, who then resells them to the market.
The term 'Bourse' refers to a stock exchange, particularly derived from the French term used for stock markets. It is fundamentally a place where securities, commodities, derivatives, and other financial instruments are traded.
The São Paulo Stock Exchange, known as Bovespa, is the largest and most significant stock exchange in Latin America, located in Brazil. It merged with the Brazilian Mercantile and Futures Exchange (BM&F) in 2008.
The interest rate at which stockbrokers borrow from banks to cover the securities positions of their clients, typically hovering close to the prime rate.
A broker-dealer is an individual or firm that buys and sells securities for its clients and its own account. Broker-dealers play a crucial role in the securities industry, providing liquidity and facilitating the trading of securities.
A situation in which asset prices are seriously inflated can lead to a market crash. Notable examples are the South Sea Bubble, the dot-com bubble, and the mid-2000s housing bubble.
A dealer on a financial market who expects prices to rise, commonly associated with a bull market, leaving the dealer more likely to be a buyer than a seller, often establishing a long position in hopes of selling at a higher price.
A business day typically refers to the hours when most businesses are in operation, commonly from 9 A.M. to 5 P.M. In finance, a business day is defined as a day when financial markets are open for trading.
A call option is a financial contract that gives the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a predetermined price within a fixed timeframe.
A Chartist is an investment analyst who uses charts of prices and volumes to forecast the movements in financial markets. This analysis relies on the assumption that historical price movements will repeat themselves in predictable patterns.
The Chicago Board Options Exchange (CBOE) is the largest U.S. options exchange and a pioneer in options trading, providing a platform for trading standardized options contracts based on various securities and financial products.
The Chicago Mercantile Exchange (CME) is one of the largest and most diverse financial exchanges in the world, allowing for the trading of futures and options across a wide array of asset classes, including agriculture, energy, metals, and financial instruments.
Circuit Breakers are measures instituted by major stock and commodities exchanges to temporarily halt trading when the market experiences a significant decline. These measures aim to prevent a market free-fall, allowing for a rebalance of buy and sell orders and giving the public time to assimilate current news.
Closet indexing involves structuring a mutual fund or other managed portfolio to nearly replicate an index while avoiding full disclosure and charging active management fees.
The closing price, also known as the closing quote, refers to the price at which the last transaction of a trading session on an organized securities exchange occurs. This price is critical for valuation purposes in various financial contexts, such as charitable contributions and estates.
A Collateralized Mortgage Obligation (CMO) is a type of mortgage-backed security that splits mortgage pools into different maturity classes, called tranches, to optimize the distribution of interest rate and prepayment risk among investors.
A commission broker is a type of broker, usually a floor broker, who executes trades of stocks, bonds, or commodities for a commission.
An independent agency of the U.S. federal government that regulates the U.S. derivatives markets, which include futures, swaps, and certain kinds of options.
A competitive bought deal is an underwriting agreement wherein the borrower seeks simultaneous competitive quotations from multiple banks for the purchase of an entire new issue of bonds or similar securities at a fixed price.
A financial derivative that allows traders to speculate on the price movement of underlying assets without owning them.
Contrarian investing is a strategy that involves going against prevailing market trends by buying assets that are performing poorly and selling those that are performing well. Contrarian investors believe that markets often overreact to news and developments, leading to opportunities for buying low and selling high.
A covered option is a type of option contract that is backed by the shares underlying the option. It involves the holder of the option also owning the equivalent amount of the underlying shares, reducing the risk compared to naked options.
A rapid and significant decline in stock prices or economic activity, or a catastrophic hardware or software failure in data processing systems.
Credit rationing refers to the allocation of loans to creditworthy borrowers by means other than pure market mechanisms. This often occurs when interest rates are maintained below the level that an unregulated market would set, resulting in excess demand for loans.
Currency risk, also known as exchange-rate risk or foreign exchange risk, arises from the fluctuation in the exchange rate between two currencies, impacting the value of investments or transactions made in foreign currencies.
A Daily Trading Limit is the maximum amount by which the price of a commodity or option is allowed to rise or fall in a single trading day. This mechanism is used to curb excessive volatility and protect investors.
Dark pools are specialized financial trading platforms that enable the buying and selling of large quantities of securities, often anonymously, without immediate public disclosure of the trade prices. These platforms offer benefits like improved trading prices for investors but also pose risks such as increased market volatility and reduced market transparency.
A dead-cat bounce is a temporary, short-lived recovery in the price of a declining financial asset, typically seen in stock markets following a sharp, severe drop. This term derives from the idea that even a dead cat will bounce if it falls from a significant height.
A computerized securities marketplace where transactions are facilitated by market makers and brokers using distributed processing, replacing the earlier centralized auction markets.
Delayed opening refers to the postponement of the start of trading in a stock until a gross imbalance in buy and sell orders is overcome. This is often necessitated by a significant event such as a takeover offer.
The delivery date is an important term used in various financial transactions, specifically in futures contracts and regular way transactions. Understanding this concept is crucial for participants in financial markets.
A certificate issued by a depository, bank, or other company stating what has been deposited for safekeeping.
Depth of Market (DOM) refers to the number of buy and sell orders waiting to be executed for a particular asset at varied price levels, indicating the liquidity and stability of that market.
The Dow Jones Industrial Average (DJIA) is the most widely followed benchmark of stock market performance, containing value changes for stocks of 30 large corporations.
Dow Theory is a theory that a major trend in the stock market must be confirmed by similar movements in the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA). According to this theory, a significant trend is not confirmed until both Dow Jones indexes reach new highs or lows; if they do not, the market is likely to fall back to its previous trading range.
A downturn refers to the shift of an economic or stock market cycle from rising to falling, indicating a move from expansion to recession or from a bull market to a bear market.
The Efficient Markets Hypothesis (EMH) posits that at any given time, asset prices in financial markets reflect all available information. This theory suggests that it is impossible for investors to either consistently make above-average returns or predict future market movements based on information that is already publicly available.
An Electronic Communication Network (ECN) is a digital system that connects major stock brokerages and individual traders so that they can trade directly without needing to go through a middleman.
Detailed examination of eligible paper, including Treasury bills, short-dated gilts, acceptances by banks, and their role in maintaining liquidity and influencing financial institutions' portfolios.
Exchange-Traded Funds (ETFs) are investment funds that are traded on stock exchanges, much like stocks. They offer a way for investors to buy and sell shares of a diversified portfolio in a single transaction.
Euribor, or the Euro Interbank Offered Rate, is a key benchmark rate based on the average interest rates at which European banks lend funds to one another in the interbank market.
Euronext N.V. is a market and clearing system for equities and traded derivatives, established through the merger of the Amsterdam, Brussels, and Paris stock exchanges. It facilitates the trading of financial instruments across several European countries.
A European Option is a type of financial derivative that can only be exercised on its expiration date, unlike American options, which can be exercised at any time before expiration.
A 'fail to deliver' situation occurs when the broker-dealer on the sell side of a contract does not deliver the securities to the broker-dealer on the buy side. This typically results from a broker not receiving delivery from its selling customer.
A situation where the broker-dealer on the buy side of a contract has not received delivery of securities from the broker-dealer on the sell side, leading to non-payment for the securities by the buyer.
Financial instruments are monetary contracts between parties. They can be created, traded, modified, and settled. They may be cash (currency), a contractual right to deliver or receive cash (as expressed by a bond), or another type of instrument that conveys ownership (equity).
The Financial Services Action Plan (FSAP) is a comprehensive strategy designed by the European Union to enhance the integration, efficiency, and competitiveness of financial markets within the EU.
In securities underwriting, a firm commitment is an arrangement whereby investment bankers make outright purchases from the issuer of securities to be offered to the public. This arrangement is also known as firm commitment underwriting.
A firm order is an instruction given to a broker to execute a transaction at specific terms that remains valid for a stated period or until cancelled.
Fixation refers to the process of setting the present or future price of a commodity based on market analyses and assessments of supply and demand.
A Flash Crash refers to a very sudden and severe drop in security prices, followed by a quick recovery. The term is most famously associated with the nearly 1,000-point drop in the Dow Jones Industrial Average (DJIA) on May 6, 2010.
Flash trading is a form of high-frequency trading (HFT) where certain traders get information about market orders fractions of a second before the general public does. This practice enables them to capitalize on this advance notice of potential trades.
Floating an issue refers to the process by which a company issues new securities to the public in order to raise capital. This process involves several steps, including registering the securities with regulatory bodies and underwriting the issue.
In the context of financial markets, the term 'Floating Supply' refers to the total number of securities, such as municipal bonds or stocks, which are presently available for purchase by investors in the open market.
A mechanism whereby an exchange rate can be calculated between two currencies for which no direct rate of exchange exists. The US dollar, which is customarily used as the vehicle currency in foreign-exchange trading, functions as the common denominator for such calculations.
A highly liquid global marketplace for currency trading. The foreign exchange market includes both the spot market for immediate transactions and the forward market for future transactions.
The rate of interest that will apply to a loan or deposit beginning on a future date and maturing on a second future date. It is a crucial concept in financial markets for managing interest rate risk.
The FTSE 100, widely known as the Footsie, is a major market capitalization-weighted index consisting of 100 blue-chip stocks listed on the London Stock Exchange, commonly referenced for gauging the performance of leading companies in the UK.
A futures contract is a standardized legal agreement to buy or sell a particular commodity, currency, or financial instrument at a predetermined price at a specified time in the future. Unlike options, futures contracts entail a mandatory obligation to execute the transaction.
A futures market is a financial exchange where futures contracts, which are agreements to buy or sell specific commodities or financial instruments at a predetermined future date and price, are traded.
Globalization refers to the multifaceted process that allows investment in financial markets and the exchange of goods, services, and information across international boundaries, facilitated by advancements in technology, deregulation, and the operations of powerful multinational enterprises.
Going short refers to the act of selling a stock or commodity that the seller does not own, typically in anticipation that the price will decline, allowing them to buy it back at a lower price for a profit.
Good delivery is a term used in the securities industry to signify that a certificate has the necessary endorsements and fulfills all specified requirements (including signature guarantees, proper denomination, and other qualifications) so that the title can be transferred by delivery to the buying broker, who is then obligated to accept it.
A brokerage customer's order to buy or sell a security, usually at a particular price, that remains in effect until executed or canceled.
The Greater Fool Theory posits that one can make money through the purchase of overvalued assets by selling them to someone even less informed or more optimistic.
An action taken to reduce or eliminate the risk involved in having an open position in a financial, commodity, or currency market.
The Hong Kong Stock Exchange (SEHK) is a primary marketplace for listed securities in Hong Kong, established in 1947. It serves as a central hub for the trading of a variety of financial instruments and houses the leading market indicator, the Hang Seng Index.
Hot money refers to capital that moves rapidly between financial markets to capitalize on interest rate differences or to avoid risks such as political intervention. Additionally, it may refer to dishonestly acquired money that needs to remain untraceable.
A term used to describe newly issued stock that rises quickly in price, often due to strong interest and demand from investors.
The International Accounting Standards Board (IASB) is the independent, private sector body that develops and approves International Financial Reporting Standards (IFRS). The IASB was formed to achieve transparency, accountability, and efficiency in financial markets around the world through consistent and high-quality accounting standards.
The Intercontinental Exchange (ICE) is an American company that owns and operates financial and commodity marketplaces. ICE plays a crucial role in global financial markets, providing trading and clearing services for a wide range of asset classes.
The IFRS Foundation is a not-for-profit organization responsible for the development and oversight of the International Financial Reporting Standards (IFRS). These standards provide a common global language for financial reporting, ensuring transparency, accountability, and efficiency in financial markets worldwide.
This term is used in options trading to describe an option that would result in a gain if exercised at the current market price. It's the opposite of 'out of the money' where the option would result in a loss.
An indicative quote is a price provided to a client as a guide to current market prices. It is not a firm offer to buy or sell at the quoted price.
Inefficiencies in the market occur when investors fail to recognize the true value or risks associated with a particular stock or bond. These inefficiencies contradict the Efficient Market Hypothesis (EMH), which posits that current prices reflect all available information about securities. However, discrepancies between theory and practice provide opportunities for arbitrageurs to profit from market inefficiencies
