Financial Glossary - Q to T

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.

Q

Quote

The current price offered or asked for a financial instrument.

R

Related order

Contingent orders are the same as related trade orders.

Several types are available:

If Done (slave), where a slave order only becomes active if the primary order is executed.

One Cancels the Other (O.C.O.), where the execution of one order cancels the other.

Three-way contingent orders are also available where two orders are placed if (If Done) a primary order is executed.

These orders are themselves related as O.C.O. orders, allowing both a stop loss and a profit taking order to be placed around a position.

Resistance

The price level at which a rising price is expected to stall when market participants begin to sell the instrument. The opposite of resistance is support.

Risk management

Trying to control the outcome of a known or predictable range of gains or losses.

Risk management involves several steps, beginning with a sound understanding of one's business and the exposures or risks that have to be covered to protect the value of that business.

Then an assessment should be made of the types of variables that can affect the business and how best to protect it against unwelcome outcomes.

Risk management may be as simple as placing stop loss orders to prevent large losses, or as complex as hedging positions with Options or diversifying the portfolio to ensure that you are not overexposed to a single industry or instrument type.

Consideration must also be given to the preferred risk profile, that is, whether one is risk-averse or fairly aggressive in approach. This also involves deciding which instruments to use to manage risk, and whether a natural hedge can be used.

Once undertaken, a risk-management strategy should be continually assessed for effectiveness and cost.

Risk reversal

The simultaneous purchase of an out-of-the-money call (put) and the sale of an out-of-the-money put (call), usually with no up-front premium.

The Options bought and sold will have the same notional size and pre-defined maturity, and the deltas will typically be set to 25%.

According to Black-Scholes, the purchase and sale of Options with similar deltas (and so out-of-the-money forward to the same extent) should be zero cost. In practice, the market favours one side over the other.

In the simplest case, the implied volatility of out-of-the-money puts and calls of the same strike price and maturity date are different, and the extra cost of the favoured side is commonly known as the risk reversal spread.

This spread reflects the market's perception that the relevant probability distribution is not symmetrical around the forward, but skewed in the direction of the favoured side.

Another way of interpreting this is to say that implied volatility is correlated with spot, which is impossible in a Black-Scholes world.

Rollover

When a Spot Forex position is held at the end of the business day prior to its Value date, it will be rolled over to a new value date on a Tom/Next basis.

As part of the rollover, positions are subject to a swap charge or credit based on the LIBOR/LIBID interest rates of the two traded currencies with an added a mark-up of +/- 0.25% (for private accounts) plus an interest component for any unrealised profit/loss on the position.

Round turn

The commission includes both the opening and the closing of the position.

The alternative is a half-turn commission, which is charged per trade (that is, for both buy and sell).

S

Secondary currency

In Forex, this is the currency that the investor pays with or receives when trading.

For example, in EURUSD the variable currency is USD, that is, one unit of EUR is worth a variable amount of USD.

When you buy EUR, you pay with USD, and when you sell EUR you receive USD.

The other currency (EUR in the example above) is called the base currency.

Secondary order

A secondary order(s) of a Three-way or If Done contingent order will not become active market orders unless the Primary order is executed.

Securities

Any investment instruments, other than insurance policies or fixed annuities, issued by a corporation, government, or other organisation. Securities are typically Stocks and bonds.

Series (of options)

All options of the same class, the same type (call or put) bearing on the same quantity of the underlying instrument, and having the same strike price and the same expiration date.

Sell bid

A limit order to sell at the current Bid Price.

Shares

Financial instruments that represent partial ownership of a company. They are also known as Stocks or equities.

Short selling

In Forex trading, going short is to buy the price currency of the Forex currency pair.

For example, if you were going short on GBPUSD, you would be buying USD by selling GBP.

For equities, going short is selling a security without owning it, as opposed to going long where you are taking ownership of the security by buying it.

A short position benefits from a decline in market prices.

Slave order

An If Done order consisting 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.

Speculative

Buying and selling solely in the hope of making a profit, rather than doing so for business-related motives.

Spot

A direct trade on a market price with a standard settlement date (Value date) of two business days from the trade date.

Spot market

The part of the market calling for spot settlement of transactions.

The precise meaning of spot depends on local custom for a commodity, security or currency.

In the UK, US and Australian foreign-exchange markets, spot means delivery two working days hence.

Spread (in index points)

The difference between the Bid price at which you can sell the trading instrument and the Ask price at which you can buy the trading instrument.

Status bar

The area at the bottom of the platform workspace, and on many trading modules, which is used for system messages and status information.

Stocks

Financial instruments that represent partial ownership of a company. Also known as equities or shares.

Stop

A buy stop is an order to buy at a specific price higher than the current market price, and a sell stop is a stop to sell at a specific price below the current market price.

Traders often refer to stop-loss orders, which are stops that are placed below the market when the trader is long, and above the market when the trader is short.

These orders are triggered when the market price reaches them to prevent further losses in the trader's position.

Stop orders are not always executed at exactly the price specified, as the market may be too volatile.

Stop-if-bid order

Stop-if-Bid orders are commonly used to buy the specified instrument in a rising market. If the price level specified is actually bid on the market, the order will be filled at the price offered by the bank.

For example, if you sold GBPUSD at 1.4280, with a Stop Bid at 1.4330, the position would be closed (GBPUSD would be bought) if the Bid price hits or breaches 1.4330.

We recommend the use of Stop-if-Bid orders only to buy Forex positions.

The use of Stop-if-Bid to sell Forex positions can result in positions being prematurely closed if a market event causes the Bid/Ask spread to widen for a short duration.

Stop-if-offered order

Stop-if-Offered orders are commonly used to sell the specified instrument in a falling market. If the price level specified is actually offered in the market, the order will be filled at the price bid by the bank.

For example, if you bought USDJPY at 132.00, with a Stop Offer at 131.50, your position would be closed (USD vs. JPY would be sold) if the Offer price hits or breaches 131.50 (in other words, if 131.50 or below is offered).

We recommend the use of Stop-if-Offered orders only to sell Forex positions.

The use of Stop-if-Offered to buy Forex positions can result in positions being prematurely closed if a market event causes the Bid/Ask spread to widen for a short duration.

Stop-limit order (Futures)

In Futures trading, a stop-limit order is a variation of a stop order, with a lower/higher limit price to suspend trading if the price falls/rises too far before the order is filled.

This effectively restricts trading to a defined price range.

Stop order

Stop orders are commonly used to exit positions and to protect against trading losses.

Stop orders to sell are placed below the current market level and are executed when the Bid price hits or breaches the price level specified.

Stop orders to buy are placed above the current market level and are executed when the Ask price hits or breaches the price level specified.

If the Bid price for sell orders (or the Ask price for buy orders) is hit or breached, the order becomes a market order and is filled as soon as possible at the price obtainable in the market.

Note that this price may differ from the price you set for the order.

In the case of Futures, the order will be filled if possible, and any remaining volume will remain open as a market order.

In the case of CFDs, the order will be filled completely if the volume in the market allows for it. In the case of a partial fill, the remaining portion of the order will remain open as an order.

In the case of Contract Options, due to restrictions in the market, Saxo Bank is not able to execute a Stop Order unless there is a traded price in the market. For this reason it is not recommended using stop orders for Contract Options.

Stop order (Forex)

Forex stop orders are commonly used to exit positions and to protect investments in the event that the market moves against an open position.

Stop orders to sell are placed below the current market level and are executed when the Bid price hits or breaches the price level specified.

Stop orders to buy are placed above the current market level and are executed when the Ask price hits or breaches the price level specified.

Stop-loss orders

This is a stop order that will execute and close a position to limit losses in case of an adverse market movement.

When a stop order is executed, it becomes a market order and is filled as soon as possible at the price obtainable on the market.

Note that this price may differ from the price you set for the order.

Straight-through-processing (STP)

This is when your order is routed directly to the exchange.

Strike price/Exercise price

The price at which the option holder may purchase (in the case of a call) or sell (in the case of a put) the underlying asset.

Summary

The combined trading status and activity for your account(s), that is, your account value, securities and equity, net positions, and the closing amount (total profit and loss over all your positions).

The available margin and the margin required for your open positions are also found here, as is an overview of your open positions.

Support

The price level at which the fall of a price is expected to slow or turn when market participants begin to buy the instrument.

The opposite of support is resistance.

Swap

An order to spot trade (for example, buy) a Forex instrument as well as to conduct the opposite transaction (for example, sell) at a fixed price on a later date.

If the first transaction is on a future date, the transaction is a forward-forward contract. Other variations are overnight and tomorrow/next day (tom/next) swaps.

Swap price

A price adjustment, added to the opening price of the position, for forwarding a Forex trade beyond the original value date.

It is a function of the interest rate differential between the two trading currencies, and may be in your favour or against you.

Symbol

A combination of letters used to uniquely identify a traded instrument. This is also called the ticker symbol.

For example: for the Forex instrument dollar-yen, the symbol is USDJPY.

An example of a CFD symbol is VOLVb:xome.

For Futures, an example is JYZ5.

For Stocks, an example is MAERSKa:xcse.

T

Time value

The amount by which the value of the Option exceeds the intrinsic value.

Theta

Describes the change in value of an Option over time.

The change in value stems from the reduction in the time to expiration and hence the reduction in the life of the Option.

Or:

An approximation of the decrease in the price of an Option over a period of time when all other factors are held constant.
Theta is generally expressed on a daily basis. For example, if a call has a price of USD3.00 and a theta of 0.10, one day later, with all else unchanged, the call would have a price of USD2.90 (USD3.00 - (.10 x 1)).
Generated by a mathematical model, Theta depends on the stock price, strike price, volatility, interest rates, dividends, and time to expiration.

Trailing stop

A Trailing Stop order is a stop order that has a trigger price that changes with the spot price.

As the market rises (for long positions), the stop price rises according to the proportion set by the user, but if the market price falls, the stop price remains unchanged.

This type of stop order helps an investor to set a limit on the maximum possible loss without limiting the possible gain on a position.

It also reduces the need to constantly monitor the market prices of open positions.

Transactions not booked

Trades, commissions and so on, that have not yet been booked. For example, a trade executed today, will be booked next business day.

Trade responsibly

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

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