Financial Glossary - I to L

The Financial Glossary has been developed to give quick access to definitions of terms and concepts used in the foreign exchange, money, equity, commodity and debt markets.

I

International Bank Account Number (IBAN) 

An IBAN number contains information detailing the country, bank and branch of the beneficiary, as well as the account number itself.

It is used to facilitate automatic processing of cross-border payments.

An IBAN can be obtained from the beneficiary's bank. An IBAN is mandatory within the EU.

If done border

An If Done order actually consists of two orders: a primary order that will be executed as soon as market conditions allow it, and a secondary order that will be activated only if the first order is executed.

In-the-Money

A call option is in the money when the market price of the underlying is above the option strike price. A put option is in the money when the strike price is above the market price of the underlying.

Index

A numerical measure of the way the price of a representative group of Stocks has changed over time. Every major exchange has one or more indices. For example, the NASDAQ exchange has the NASDAQ 100 Index (a composite of the100 largest non-financial companies listed on NASDAQ). Some indices are created and managed by private corporations, such as the Dow Jones Industrial Average and S&P 500. You can trade CFDs based on many of the world's stock market indices.

Initial margin

Initial payment paid by members to the clearing house and by clients to clearing house members to open a futures position or to write options. Initial margin covers the risk of default and is adjusted daily by calls for variation margin.

Instrument

A tradable symbol with a monetary value. This can be a Forex cross (currency pair), or a stock ticker (for CFDs and Stocks), etc.

Instrument currency

The currency the instrument is traded in

Interbank

Short-term (often overnight) borrowing and lending between banks, as distinct from a banks' business with their corporate clients or other financial institutions.

Interest

Interest is a charge applied to borrowed money, and is generally expressed as a percentage per year.

When buying CFDs, you are in principle borrowing money for a trade, so you are charged a standard interest rate based on the current LIBOR (London Interbank Offer Rate) plus a small percentage.

When you sell a CFD, on the other hand, you receive interest for the amount the CFD represents. This percentage is the LIBID rate minus a small percentage.

Interest rate differential

The yield spread between two otherwise comparable debt instruments denominated in different currencies.

Intrinsic value

The amount by which an Option is in the money. In the case of a call Option, the intrinsic value is the current price for the underlying asset, less the strike price. For a put Option, the intrinsic value is the strike price less the price for the underlying asset. If the difference between the prices is not positive in either case, then the intrinsic value is zero.

J

Join bid

A limit order to buy at the current bid price.

Join offer

A limit order to sell at the current Offer (Ask) Price.

K

Kurtosis

A statistical measure used to describe the distribution of observed data around the average or mean.

It is sometimes described as the volatility of volatility.

A high kurtosis portrays a chart with fat tails and a low, even distribution, whereas a low kurtosis portrays a chart with skinny tails and a distribution concentrated toward the mean.

L

Leverage

The ability to hold an investment position of greater value than that of your equity (collateral). When leveraging (also called gearing) your investment, you need only deposit a fraction of the current value of the instrument you are investing in.

For example if the commodity you are trading in requires a margin of 5%, this allows you to leverage (or gear) your investment 20 times. In other words, a deposit of USD 10,000 can hold a position of USD 200,000.

Limit order

Limit orders are commonly used to enter a market and to take profit at predefined levels. Limit orders to buy are placed below the current market price and are executed when the ask price hits or breaches the price level specified. (If placed above the current market price, the order is filled instantly at the best available price below or at the limit price.)

Limit orders to sell are placed above the current market price, and are executed when the bid price breaches the price level specified. (If placed below the current market price, the order is filled instantly at the best available price above or at the limit price.) When a limit order is triggered, it is filled as soon as possible at the price obtainable on the market.

Note that the price at which your order is filled may differ from the price you set for the order if the opening price of the market is better than your limit price. In the case of Futures, the order will be filled if possible, and any remaining volume will remain in the market as a limit order. In the case of CFDs, the order will be filled if possible, and any remaining volume will remain in the market as a limit order.

Liquid(-ity)

The capacity to be converted easily and with minimum loss into cash. Ultra-short-dated treasury notes are an example of a liquid investment. A liquid market is one in which there is enough activity to satisfy both buyers and sellers.

Long

In general, going long is buying, and going short is selling. A long position will increase in value if market prices increase.

For example, in Forex trading, going long is buying the trade currency of the Forex currency pair. If you were going long on USDJPY, you would be buying USD by selling JPY.

For securities, going long is taking ownership of a security through buying it, as opposed to going short where you sell the security without owning it.

Lot

Used in Futures contract trading to define a fixed contract size corresponding to a fixed amount of the item that will be traded in the future.

Trade responsibly

Losses can exceed deposits on margin products. Please ensure you understand the risks.

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.


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