4.4 Glossary
Algorithm: A set of rules and criteria used in trading strategies.
Algorithmic Trading (Algo Trading): Automated trading strategies using pre-defined algorithms and computer programs.
All or None (AON): An order that must be executed in its entirety or not at all.
Alpha: A measure of a portfolio's performance relative to a market index.
Alpha Decay: A reduction in the alpha of a derivative over time.
Arbitrage: Profiting from price differences of the same asset in different markets.
Arbitrageur: A trader who engages in arbitrage.
Ask Price: The price at which sellers are willing to sell a security.
Ask Size: The number of shares or contracts available at the ask price.
Asset Allocation: Diversifying investments among different asset classes.
Average True Range (ATR): A measure of market volatility.
Backtesting: Testing a trading strategy on historical data to assess its viability.
Bar Chart: A chart displaying price data as vertical bars.
Bear Market: A market characterized by declining prices.
Bear Spread: A strategy involving simultaneous sale and purchase of options.
Bid Price: The price at which buyers are willing to purchase a security.
Bid Size: The number of shares or contracts wanted by buyers at the bid price.
Bollinger Bands: A volatility indicator consisting of a moving average and two standard deviation bands.
Bull Market: A market characterized by rising prices.
Bull Spread: A strategy involving simultaneous purchase and sale of options.
Buy and Hold: A long-term investment strategy without frequent trading.
Buy-In: Forcing the purchase of shares due to a failure to deliver.
Buyer's Market: A market with more supply than demand, favoring buyers.
Call Option: An option to buy an underlying asset at a specified price.
Capital: The amount of money available for trading.
Capital Gain: Profit from the sale of an asset for more than its purchase price.
Capital Loss: Loss from the sale of an asset for less than its purchase price.
Cash Market: A market for the immediate settlement of transactions.
Candlestick Chart: A chart displaying open, high, low, and close prices for a specific time period.
Closing Price: The final price of a security at the end of a trading session.
Collateral: Assets used to secure a loan.
Commission: Fees paid to a broker for executing trades.
Consolidation: A period of price range narrowing, often before a breakout
Correlation: The degree to which two assets move in relation to each other.
Covered Call: A strategy involving holding the underlying asset and selling call options.
Credit Risk: The risk that a debtor will not meet their financial obligations.
Dark Cloud Cover: A bearish candlestick pattern signaling potential reversal.
Day Trader: A trader who opens and closes positions within the same trading day.
Dead Cat Bounce: A brief price increase in a declining market before further decline.
Deadhead: An unexecuted market order.
Derivative: A financial contract derived from an underlying asset.
Divergence: When an indicator disagrees with the price direction.
Dividend: A payment to shareholders from a company's earnings.
Drawdown: The decline in a trading account's value from its peak.
Earnings Per Share (EPS): A company's profit divided by its outstanding shares.
Economic Indicator: A statistic indicating the health of an economy.
Efficiency Ratio: A measure of a trader's success in executing orders.
Elliott Wave Theory: A technical analysis approach based on wave patterns.
Equity: The value of ownership in an asset after liabilities are subtracted.
Execution: The process of completing a trade.
Execution Risk: The risk that an order may not be filled at the desired price.
Exit Strategy: A predetermined plan for closing a trade.
Expiration Date: The date when an option contract ceases to be valid.
Fair Value: The estimated intrinsic value of a security.
Fibonacci Extension: A tool to identify potential price targets in a trend.
Fibonacci Retracement: A tool for identifying potential support and resistance levels.
Fill or Kill (FOK): An order that must be executed immediately or canceled.
Financial Leverage: Using borrowed funds to amplify trading positions.
Fund Manager: A professional who manages an investment fund.
Gamma: A measure of how an option's delta changes with price movement.
Golden Cross: A bullish technical indicator when a short-term moving average crosses above a long-term moving average.
Hanging Man: A bearish candlestick pattern signaling potential reversal.
Hard Stop: A predetermined price at which a trader exits a position.
Hedger: A trader or investor who uses hedging strategies to manage risk.
Historical Volatility: A measure of past price fluctuations.
In-the-Money (ITM): An option with intrinsic value.
Index: A benchmark that represents a market or sector's performance.
Index Fund: A fund designed to track the performance of a specific index.
Indicators: Tools used to analyze market data, e.g., RSI, MACD.
Initial Margin: The initial deposit required to open a leveraged position.
Institutional Investor: Large organizations that invest in financial markets.
Intraday: Within the same trading day.
Intraday High/Low: The highest and lowest prices of a security during a trading day.
Intrinsic Value: The real or true value of an option.
Japanese Candlestick Chart: A charting method displaying price movements using candlestick patterns.
Lagging Indicator: An indicator that reacts to past price movements.
Leverage: Using borrowed funds to increase position size.
Liquidity: The ease of buying or selling an asset without affecting its price.
Limit Order: An order to buy or sell at a specified price or better.
Long Call: An option strategy involving buying call options.
Long Position: Owning an asset with the expectation of its price rising.
Long Put: An option strategy involving buying put options.
Long Squeeze: A rapid price increase due to long positions being liquidated.
MACD (Moving Average Convergence Divergence): A trend-following momentum indicator.
Margin: Borrowed funds from a broker for trading.
Margin Call: A request for additional funds when a trader's account falls below a required level.
Market Capitalization (Market Cap): The total value of a publicly traded company's outstanding shares.
Market Maker: A trader or firm that provides liquidity by buying and selling assets.
Market Order: An order to buy or sell at the current market price.
Market Sentiment: The overall attitude of traders and investors toward a market.
Market Timing: Attempting to predict the future direction of a market.
Market Volatility: The degree of price fluctuation in a market.
Market-Making: A trading strategy where a trader continuously buys and sells to provide liquidity.
Momentum: The strength and persistence of price movements.
Moving Average: An average of security prices over a specific period.
Naked Option: Selling options without owning the underlying asset.
Net Asset Value (NAV): The per-share value of a mutual fund or ETF.
Odd Lot: A number of shares not divisible by the standard trading unit.
Open Interest: The total number of outstanding futures or options contracts.
Option Premium: The price paid for an option contract.
Out-of-the-Money (OTM): An option with no intrinsic value.
Pegging: A strategy to stabilize the market price of a security.
Penny Stock: Low-priced, often speculative stocks.
Pennant: A continuation chart pattern indicating a brief consolidation before a price breakout.
Pip: The smallest price movement in a currency pair.
Pivot Point: A technical analysis tool used to identify potential support and resistance levels.
Portfolio: A collection of assets held by a trader or investor.
Position Trading: A trading style involving longer-term holdings.
Price Action: Analysis of price movements without relying on indicators.
Price Discovery: The process of determining the market price of an asset.
Price-Earnings (P/E) Ratio: A valuation ratio comparing a company's stock price to its earnings per share.
P/S Ratio: The P/S ratio, also known as the Price-to-Sales ratio, is a financial metric used by investors and analysts to assess the valuation of a company's stock
Profit and Loss (P&L): The financial result of trading activities.
Pyramiding: Increasing the size of a position as it becomes more profitable.
Quantitative Analysis: Analyzing data and statistics for trading decisions.
Range: The difference between a security's high and low prices during a specific period.
Rate of Return: The percentage gain or loss on an investment relative to its initial value.
Regression Analysis: A statistical method for analyzing relationships between variables.
Relative Strength: Comparing the performance of one asset to another.
Resistance: A price level where selling pressure may outweigh buying pressure.
Reversal: A change in the direction of an asset's price trend.
Risk Management: Strategies to limit potential losses.
RSI (Relative Strength Index): A momentum oscillator to measure overbought or oversold conditions.
Scalping: A strategy aiming to make small profits from quick trade.
Securities and Exchange Commission (SEC): U.S. regulatory body overseeing securities markets.
Settlement Date: The date when a securities transaction is finalized.
Short Covering: Buying to close a previously short position.
Short Interest: The total number of shares sold short by investors.
Short Position: Selling an asset with the expectation of its price falling.
Short Selling: Selling borrowed shares with the expectation of buying them back at a lower price.
Signal: A trigger to buy or sell based on technical or fundamental analysis.
Single Stock Futures (SSF): Futures contracts on individual stocks.
Skewness: A measure of the asymmetry of a probability distribution.
Slippage: The difference between expected and actual trade execution prices.
Speculator: A trader seeking profit from price fluctuations.
Spread: The difference between the bid and ask prices.
Spread Betting: A type of betting on financial markets without owning the underlying asset.
Squeeze: A situation where traders are forced to buy or sell due to adverse price movements.
Standard Deviation: A measure of price volatility or dispersion.
Statistical Arbitrage: Trading based on statistical relationships between assets.
Stock Exchange: A marketplace for buying and selling securities.
Stop Limit Order: An order to buy or sell once a specified price is reached.
Stop Loss Order: An order to sell at a predetermined price to limit losses.
Support: A price level where buying pressure may outweigh selling pressure.
Support and Resistance: Price levels where buying and selling pressure tend to occur.
Swing High/Low: The highest and lowest points in an asset's price movement.
Swing Trading: Holding positions for several days or weeks.
Technical Analysis: Analyzing price charts and patterns to predict future movements.
Technical Indicator: Mathematical calculations applied to price and volume data.
Theta: A measure of the time decay of an option's value.
Time and Sales: A real-time record of security trades.
Time Decay: The erosion of an option's value as it approaches expiration.
Trader Psychology: Managing emotions and maintaining discipline in trading.
Trading Desk: A workspace where traders execute orders.
Trading Plan: A predefined strategy outlining entry and exit rules.
Trend: The general direction in which an asset's price is moving.
Trend Line: A line on a chart connecting successive highs or lows.
Trailing Stop: A stop-loss order that adjusts with the price movement.
Underlying Asset: The asset on which a derivative contract is based.
Vega: A measure of an option's sensitivity to changes in implied volatility.
VIX (Volatility Index): A measure of market volatility.
Volume: The number of shares or contracts traded in a given period.
Volume Profile: A graphical representation of trading volume at different price levels.
Volatility: The degree of price fluctuation in a market.
VWAP (Volume-Weighted Average Price): An average price weighted by trading volume.
Wash Trading: Illegitimate trading to create the illusion of activity.
Wedge: A chart pattern resembling a triangle signaling a potential price breakout.
Whipsaw: Rapid price movement in both directions.
Yield: The income generated by an investment, often expressed as a percentage.
Yield Curve: A graphical representation of interest rates on debt for various maturities.
Zigzag: A technical analysis tool used to identify price trends and reversals.
Zone of Resistance: A price range where selling pressure is expected.
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