Industry WIKI

Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of computers relative to human traders. In the twenty-first century, algorithmic trading has been gaining traction with both retail and institutiona

Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index. An alpha of 1% means the investment's return on investment over a selected period of time was 1% better than the market during that same period; a negative alpha means the investment underperformed the market.

Alternative trading system (ATS) is a US and Canadian regulatory term for a non-exchange trading venue that matches buyers and sellers to find counterparties for transactions. Alternative trading systems are typically regulated as broker-dealers rather than as exchanges (although an alternative trading system can apply to be regulated as a securities exchange). In general, for regulatory

Arbitrage ( , UK also ) is the practice of taking advantage of a difference in prices in two or more markets – striking a combination of matching deals to capitalize on the difference, the profit being the difference between the market prices at which the unit is traded. Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge.

Backwardation is a market condition where the price of a commodity's forward or futures contract price is trading below the spot price.

In finance, the beta (β or market beta or beta coefficient) is a statistic that measures the expected increase or decrease of an individual stock price in proportion to movements of the stock market as a whole. Beta can be used to indicate the contribution of an individual asset to the market risk of a portfolio when it is added in small quantity. It refers to an asset's non-diversifiabl

The bid–ask spread (also bid–offer or bid/ask and buy/sell in the case of a market maker) is the difference between the prices quoted (either by a single market maker or in a limit order book) for an immediate sale (ask) and an immediate purchase (bid) for stocks, futures contracts, options, or currency pairs in some auction scenario. The size of the bid–ask spread in a security is one m

A block trade is a high-volume transaction in a security that is privately negotiated and executed outside of the open market for that security. Major broker-dealers often provide "block trading" services—sometimes known as "upstairs trading desks"—to their institutional clients. In the United States and Canada a block trade is usually at least 10,000 shares of a stock or $100,000 of bo

In financial services, a broker-dealer is a natural person, company or other organization that engages in the business of trading securities for its own account or on behalf of its customers. Broker-dealers are at the heart of the securities and derivatives trading process.

Budapest Stock Exchange (BSE) (Hungarian: Budapesti Értéktőzsde, pronounced [ˈbudɒpɛʃti ˈeːrteːktøːʒdɛ] (BÉT)) is the third largest stock exchange in Central and Eastern Europe by market capitalization and liquidity. It is located at 55 Krisztina Boulevard, Budapest, Hungary, in the Buda Centre of the Hungarian National Bank Previously, from 1864, during the Austro-Hungarian Empire it wa

The Buffett indicator (or the Buffett metric, or the Market capitalization-to-GDP ratio) is a valuation multiple used to assess how expensive or cheap the aggregate stock market is at a given point in time. It was proposed as a metric by investor Warren Buffett in 2001, who called it "probably the best single measure of where valuations stand at any given moment", and its modern form co

In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta (β) in t

Cash flow matching is a process of hedging in which a company or other entity matches its cash outflows (i.e., financial obligations) with its cash inflows over a given time horizon. It is a subset of immunization strategies in finance. Cash flow matching is of particular importance to defined benefit pension plans.

A collective trust fund or collective investment trust (CIT) is a legal trust administered by a bank or trust company that combines assets for multiple investors who meet specific requirements set forth in the fund's declaration of trust. Typically, a collective trust pools assets from corporate and governmental profit sharing, pension and stock bonus plans, and charitable and other tax

Concentration risk is a banking term describing the level of risk in a bank's portfolio arising from concentration to a single counterparty, sector or country.

Contango is a situation in which the futures price (or forward price) of a commodity is higher than the spot price. In a contango situation, arbitrageurs or speculators are "willing to pay more for a commodity [to be received] at some point in the future than to purchase the commodity immediately. This may be due to people's desire to pay a premium to have the commodity in the future rat

Convergence trade is a trading strategy consisting of two positions: buying one asset forward—i.e., for delivery in future (going long the asset)—and selling a similar asset forward (going short the asset) for a higher price, in the expectation that by the time the assets must be delivered, the prices will have become closer to equal (will have converged), and thus one profits by the amo

Convertible arbitrage is a market-neutral investment strategy often employed by hedge funds. It involves the simultaneous purchase of convertible securities and the short sale of the same issuer's common stock.

In competition law, cornering the market consists of obtaining sufficient control of a particular stock, commodity, human capital or other asset in an attempt to reduce competition.

Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources. The primary goal of corporate finance is to maximize or increase shareholder value.

A correlation swap is an over-the-counter financial derivative that allows one to speculate on or hedge risks associated with the observed average correlation, of a collection of underlying products, where each product has periodically observable prices, as with a commodity, exchange rate, interest rate, or stock index.

The cost of carry or carrying charge is the cost of holding a security or a physical commodity over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the inst

Covered interest arbitrage is an arbitrage trading strategy whereby an investor capitalizes on the interest rate differential between two countries by using a forward contract to cover (eliminate exposure to) exchange rate risk. Using forward contracts enables arbitrageurs such as individual investors or banks to make use of the forward premium (or discount) to earn a riskless profit fro

In finance, a credit derivative refers to any one of "various instruments and techniques designed to separate and then transfer the credit risk" or the risk of an event of default of a corporate or sovereign borrower, transferring it to an entity other than the lender or debtholder.

Credit risk is the chance that a borrower does not repay a loan or fulfill a loan obligation. For lenders the risk includes late or lost interest and principal payment, leading to disrupted cash flows and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. Because of this, me

Cross-listing (or multi-listing, or interlisting) of shares is when a firm lists its equity shares on one or more foreign stock exchange in addition to its domestic exchange. To be cross-listed, a company must thus comply with the requirements of all the stock exchanges in which it is listed, such as filing.

A crossing network is an alternative trading system (ATS) that matches buy and sell orders electronically for execution without first routing the order to an exchange or other public displayed market such as an electronic communication network (ECN). Such crossing networks are a type of dark pool that employ computerized systems to match buyers and sellers of large blocks of shares with

Cryptocurrency is a type of digital asset that uses distributed ledger, or blockchain, technology to enable a secure transaction.

In finance, a dark pool (also black pool) is a private forum (alternative trading system or ATS) for trading securities, derivatives, and other financial instruments. Liquidity on these markets is called dark pool liquidity. The bulk of dark pool trades represent large trades by financial institutions that are offered away from public exchanges like the New York Stock Exchange and the NA

In finance, delta neutral describes a portfolio of related financial securities, in which the portfolio value remains unchanged when small changes occur in the value of the underlying security (having zero delta). Such a portfolio typically contains options and their corresponding underlying securities such that positive and negative delta components offset, resulting in the portfolio's

Delta one products are financial derivatives that have no optionality and as such have a delta of (or very close to) one – meaning that for a given instantaneous move in the price of the underlying asset there is expected to be an identical move in the price of the derivative. Delta one products can sometimes be synthetically assembled by combining options. For instance, you can be long

In finance, a derivative is a contract between a buyer and a seller. The derivative can take various forms, depending on the transaction, but every derivative has the following four elements:

The derivatives market is the financial market for derivatives – financial instruments like futures contracts or options – which are derived from other forms of assets.

Direct market access (DMA) in financial markets is the electronic trading infrastructure that gives investors wishing to trade in financial instruments a way to interact with the order book of an exchange. Normally, trading on the order book is restricted to broker-dealers and market making firms that are members of the exchange. Using DMA, investment companies (also known as buy side fi

In finance, a dividend future is an exchange-traded derivative contract that allows investors to take positions on future dividend payments. Dividend futures can be on a single company, a basket of companies, or on an Equity index. They settle on the amount of dividend paid by the company, the basket of companies, or the index during the period of the contract.

The dividend yield of a share is the ratio of annualised cash dividends to the share's current market price. It is usually expressed as a percentage and is commonly calculated by dividing the annual dividend per share by the current share price.

The drawdown is the measure of the decline from a historical peak in some variable (typically the cumulative profit or total open equity of a financial trading strategy).

In economics, a dual exchange rate is the occurrence of two different values of a currency for different sets of monetary transactions. One of the most common types consists of a government setting one exchange rate for specific transactions involving foreign exchange and another exchange rate governing other transactions.

Dupont analysis is a tool used in financial analysis, where return on equity (ROE) is separated into its component parts.

Earning yield is the quotient of earnings per share (E), divided by the share price (P), giving E/P. It is the reciprocal of the P/E ratio.

In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of the euro.

The expected return (or expected gain) on a financial investment is the expected value of its return (of the profit on the investment). It is a measure of the center of the distribution of the random variable that is the return. It is calculated by using the following formula:

Financial econometrics is the application of statistical methods to financial data. Financial econometrics is a branch of financial economics, in the field of economics. Areas of study include capital markets, financial institutions, corporate finance and corporate governance. Topics often revolve around asset valuation of individual stocks, bonds, derivatives, currencies and other fina

Financial law is the law and regulation of the commercial banking, capital markets, insurance, derivatives and investment management sectors. Understanding financial law is crucial to appreciating the creation and formation of banking and financial regulation, as well as the legal framework for finance generally.

A financial market is a marketplace where the pricing and trade of securities, commodities, currency, derivatives, or other financial products takes place. The term may refer to a specific stock or commodity exchange, or to the general process by which relevant economic activity is organized and carried out.

There are several concepts of efficiency for a financial market. The most widely discussed is informational or price efficiency, which is a measure of how quickly and completely the price of a single asset reflects available information about the asset's value. Other concepts include functional/operational efficiency, which is inversely related to the costs that investors bear for maki

There are two basic financial market participant distinctions, investors versus speculators and institutional versus retail. Action in financial markets by central banks is usually regarded as intervention rather than participation.

Financial regulation is a broad set of policies that apply to the financial sector in most jurisdictions, justified by two main features of finance: systemic risk, which implies that the failure of financial firms involves public interest considerations; and information asymmetry, which justifies curbs on freedom of contract in selected areas of financial services, particularly those tha

Financial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial loss and uncertainty about its extent.

Fixed-income arbitrage is a group of market-neutral-investment strategies that are designed to take advantage of differences in interest rates between varying fixed-income securities or contracts (Jefferson, 2007). Arbitrage in terms of investment strategy, involves buying securities on one market for immediate resale on another market in order to profit from a price discrepancy.

A flight-to-quality, or flight-to-safety, is a financial market phenomenon occurring when investors sell what they perceive to be higher-risk investments and purchase safer investments, such as gold and government bonds. This is considered a sign of fear in the marketplace, as investors seek less risk in exchange for lower profits.

A floor trader is a member of a stock or commodities exchange who trades on the floor of that exchange for their own account. The floor trader must abide by trading rules similar to those of the exchange specialists who trade on behalf of others. The term should not be confused with floor broker.

A foreign exchange derivative is a financial contract whose value changes depending on currency exchange rates.

Foreign exchange fraud is any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading became a common form of fraud in early 2008, according to Michael Dunn of the U.S. Commodity Futures Trading Commission.

The foreign exchange market (forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. By trading volume, it is by far the largest market in the world, followed by the credit market.

Foreign exchange risk (also known as FX risk, exchange rate risk or currency risk) is a financial risk that exists when a financial transaction is denominated in a currency other than the domestic currency of the company. The exchange risk arises when there is a risk of an unfavourable change in exchange rate between the domestic currency and the denominated currency before the date when

In finance, a forward contract, or simply a forward, is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on in the contract, making it a type of derivative instrument. The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a sh

The forward exchange rate (also sometimes referred to as forward rate or forward price) is the exchange rate at which two counterparties (such as a bank and an investor) agree to exchange one currency for another at a future date when they enter into a forward contract. Multinational corporations, banks, and other financial institutions enter into forward contracts to take advantage of t

Front running, also known as tailgating, is the practice of entering into an equity (stock) trade, option, futures contract, derivative, or security-based swap to capitalize on advance, nonpublic knowledge of a large ("block") pending transaction that will influence the price of the underlying security. In essence, it means the use of knowledge of an impending trade to engage in a person

Fund governance refers to a system of checks and balances and work performed by the governing body (board) of an investment fund to ensure that the fund is operated not only in accordance with law, but also in the best interests of the fund and its investors. The objective of fund governance is to uphold the regulatory principles commonly known as the four pillars of investor protection

Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; competitors and markets. It also considers the overall state of the economy and factors including interest rates, production, earnings, employment, GDP, housing, manufacturing and management. There are two bas

In finance, a futures contract (often just called a future) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The item transacted is usually a commodity or financial instrument. The predetermined price of the contract is known as the forward price or delivery pric

In mathematical finance, the Greeks are the quantities (known in calculus as partial derivatives; first-order or higher) representing the sensitivity of the price of a derivative instrument, such as an option or future, to changes in one or more underlying parameters on which the value of an instrument or portfolio of financial instruments is dependent. The name is used because the most

A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, many types of over-the-counter and derivative products, and futures contracts.

High-frequency trading (HFT) is a type of algorithmic automated trading system in finance characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no single definition of HFT, among its key attributes are highly sophisticated algorithms, co-location, and very short-term inve

In financial mathematics, the implied volatility (IV) of an option contract is that value of the volatility of the underlying instrument which, when input in an option pricing model (usually Black–Scholes), will return a theoretical value equal to the price of the option. A non-option financial instrument that has embedded optionality, such as an interest rate cap, can also have an impl

In international economics and international political economy, the impossible trinity (also known as the trilemma, the monetary trilemma or the Unholy Trinity) is the view that it is impossible to have all three of the following at the same time:

Interest rate parity is a no-arbitrage condition representing an equilibrium state under which investors compare interest rates available on bank deposits in two countries. The fact that this condition does not always hold allows for potential opportunities to earn riskless profits from covered interest arbitrage. Two assumptions central to interest rate parity are capital mobility and p

In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with forward rate agreements (FRAs), and with zero coupon swaps (ZCSs).

An investor is a person or entity that allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital the investor usually purchases some species of property. Types of investments include equity, debt, securities, real estate, infrastructure, currency, commodity, token, derivatives such as put and call optio

In finance, Jensen's alpha (or Jensen's Performance Index, ex-post alpha) is used to determine the abnormal return of a security or portfolio of securities over the theoretical expected return. It is a version of the standard alpha based on a theoretical performance instead of a market index.

Legal risk as a subset of operational risk that comprises the uncertainty associated with a business becoming a subjects of legal liability and obligations as a result of its operation.

Leverage is defined as the ratio of the asset value to the cash needed to purchase it. The leverage cycle can be defined as the procyclical expansion and contraction of leverage over the course of the business cycle. The existence of procyclical leverage amplifies the effect on asset prices over the business cycle.

Liquidity risk is a financial risk that for a certain period of time a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price.

This is a list of notable futures exchanges. Those stock exchanges that also offer trading in futures contracts besides trading in securities are listed both here and the list of stock exchanges.

In corporate finance, a listing refers to the company's shares being on the list (or board) of stock that are publicly listed. Some stock exchanges allow shares of a foreign company to be listed and may allow dual listing, subject to conditions.

In finance, a long position in a financial instrument means the holder of the position owns a positive amount of the instrument. The holder of the position has the expectation that the financial instrument will increase in value. This is known as a bullish position. The term "long position" is often used in context of buying options contracts.

Long/short equity is an investment strategy generally associated with hedge funds. It involves buying equities that are expected to increase in value and selling short equities that are expected to decrease in value. This is different from the risk reversal strategies where investors will simultaneously buy a call option and sell a put option to simulate being long in a stock.

Macro risk is financial risk that is associated with macroeconomic or political factors. There are at least three different ways this phrase is applied. It can refer to economic or financial risk found in stocks and funds, to political risk found in different countries, and to the impact of economic or financial variables on political risk. Macro risk can also refer to types of economi

In finance, margin is the collateral that a holder of a financial instrument has to deposit with a counterparty (most often a broker or an exchange) to cover some or all of the credit risk the holder poses for the counterparty. This risk can arise if the holder has done any of the following:

The Margin-at-Risk (MaR) is a quantity used to manage short-term liquidity risks due to variation of margin requirements, i.e. it is a financial risk occurring when trading commodities. It is similar to the Value-at-Risk (VaR), but instead of simulating EBIT it returns a quantile of the (expected) cash flow distribution.

A market anomaly in a financial market is predictability that seems to be inconsistent with (typically risk-based) theories of asset prices. Standard theories include the capital asset pricing model and the Fama-French Three Factor Model, but a lack of agreement among academics about the proper theory leads many to refer to anomalies without a reference to a benchmark theory (Daniel and

In finance, market depth is a real-time list displaying the quantity to be sold versus unit price. The list is organized by price level and is reflective of real-time market activity. Mathematically, it is the size of an order needed to move the market price by a given amount. If the market is deep, a large order is needed to change the price.

A market maker or liquidity provider is a company or individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the difference, which is called the bid–ask spread or turn. This stabilizes the market, reducing price variation (volatility) by setting a trading price range for the asset.

In economics and finance, market manipulation occurs when someone intentionally alters the supply or demand of a security to influence its price. This can involve spreading misleading information, executing misleading trades, or manipulating quotes and prices.

A market trend is a perceived tendency of the financial markets to move in a particular direction over time. Analysts classify these trends as secular for long time-frames, primary for medium time-frames, and secondary for short time-frames. Traders attempt to identify market trends using technical analysis, a framework which characterizes market trends as predictable price tendencies wi

Military payment certificates, or MPC, was a form of currency used to pay United States (US) military personnel in certain foreign countries in the mid and late twentieth century. They were used in one area or another from a few months after the end of World War II until a few months after the end of U.S. participation in the Vietnam War – from 1946 until 1973. The certificates were made

In finance, model risk is the risk of loss resulting from using insufficiently accurate models to make decisions, originally and frequently in the context of valuing financial securities.

In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it will not bear the full costs associated with that risk. For example, when a corporation is insured, it may take on higher risk knowing that its insurance will pay the associated costs. A moral hazard may occur where the actions of the risk-taking party change t

A multi-manager fund is an investment product that consists of multiple specialized funds. Each specialized fund may invest across different sectors and markets, or in the same asset class but have different investment styles. For example, large cap value fund versus large cap growth fund.

Net capital outflow (NCO) is the net flow of funds being invested abroad by a country during a certain period of time (usually a year). A positive NCO means that the country invests outside more than the world invests in it. NCO is one of two major ways of characterizing the nature of a country's financial and economic interaction with the other parts of the world (the other being the ba

In finance, a non-deliverable forward (NDF) is an outright forward contract or futures contract in which counterparties settle the difference between the contracted NDF price or rate and the prevailing spot price or rate on an agreed notional amount. It is used in various markets such as foreign exchange and commodities. NDFs are also known as forward contracts for differences (FCD).

An odd lotter is an investor who purchases shares or other securities in small or unusual quantities. Stocks are typically traded in increments of 100 shares, a quantity known as a round lot or board lot. The cost of 100 shares of a security may be beyond the means of an individual investor, or may represent a larger investment than the investor wishes to make. Thus, the investor purcha

Open outcry is a method of communication between professionals on a stock exchange or futures exchange, typically on a trading floor. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders. The part of the trading floor where this takes place is called a pit.

An operating partner is a title used by venture capital (VC) and private equity (PE) firms to describe a role dedicated to working with privately held companies to increase value. The role was created by large-capitalization private equity groups when the importance of driving corporate change to add value increased as sellers became more sophisticated and financial engineering less cent

An order book is the list of orders (manual or electronic) that a trading venue (in particular stock exchanges) uses to record the interest of buyers and sellers in a particular financial instrument. A matching engine uses the book to determine which orders can be fully or partially executed.

The following outline is provided as an overview of and topical guide to corporate finance:

The following outline provides an overview and topical guide to finance:

Over-the-counter (OTC) or off-exchange trading or pink sheet trading is done directly between two parties, without the supervision of an exchange. It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit of facilitating liquidity, providing transparency, and maintaining the current market price. In an OTC trade, the price is not necessarily pub

In finance, partial return reverse swap (PRRS) is a type of derivative swap, a financial contract that transfers a percentage of both the credit risk and market risk of an underlying asset, usually half, while also transferring all of the ownership liabilities for estate planning, tax purposes, and insider trading rules.