The 100-day moving average is a popular technical indicator which investors use to analyze price trends. It is simply a security's average closing price over the last 100 days. You can calculate the...
The 150-day moving average is a popular technical indicator which investors use to analyze price trends. It is simply a security's average closing price over the last 150 days. You can calculate the...
The 200-day moving average is a popular technical indicator which investors use to analyze price trends. It is simply a security's average closing price over the last 200 days. You can calculate the...
The 50-day moving average is a popular technical indicator which investors use to analyze price trends. It is simply a security's average closing price over the last 50 days. You can calculate the 5...
In an interest rate swap, the absolute rate is the sum of the fixed rate component and the variable bank rate. If two counterparties exchange a fixed interest rate and a variable interest rate as pa...
Accelerated vesting occurs when a stock option becomes exercisable earlier than originally scheduled. For example, let's assume that John Doe receives options to buy 2,000 shares of Company XYZ, his...
An accreting principal swap is a swap in which the two parties to the contract agree to pay interest on a growing principal amount. In a swap, one party is reducing its exposure to risk while the ot...
An American option is a put option or call option that can be exercised at any time on or before its expiration date.  For example, an investor holding an American option that expires on the last F...
The Arms Index (Trin) uses the ratio of advancing issues to declining issues to signal when the market is deeply overbought or oversold. The Arms Index is named after its designer, Richard Arms. It...
The ascending triangle is marked by two significant technical features. At its top, there is a line of resistance. This is a supply line, or a price at which sellers step into the market and unload t...
Asset backed securities (ABS) are securities backed by the cash flows of a pool of assets. Home equity loans, auto loans, credit card receivables, and student loans commonly back this class of sec...
An asset-or-nothing call option either pays the value equal to one unit of the underlying asset if that asset is above the strike price or pays nothing if the asset is below the strike price at expir...
An asset-or-nothing put option is an option with two possible outcomes: a fixed amount if the market value is below the strike price and no payment at all if it is higher than the strike price. A ty...
An assignable contract allows a contract holder to assign his or her rights and obligations under the contract to a third party. The most common assignable contracts are futures contracts. Let's ass...
Average true range (ATR) is a technical indicator that measures the volatility of an asset's average daily price movements. Average true range starts with the concept of "true range." True range (TR...
A back fee is associated with exercising a compound option. Many investors know that they don’t always have to make outright purchases or sales of securities; they can also use puts and calls. But...
A bear spread is a strategy used in options trading. A trader purchases a contract with a higher strike price and sells a contract with a lower strike price. This strategy is used to maximize profit ...
A bearish engulfing pattern occurs in the candlestick chart of a security when a large black candlestick fully engulfs the small white candlestick from the period before. This pattern usually occurs...
A bearish harami refers to a stock market trend indicating that the value of a stock is likely to experience a downwards, or bearish, momentum following a period of upward, bullish movement. In tech...
The Black-Scholes model is a formula used to assign prices to European options. The model is named after Fischer Black and Myron Scholes, who developed it in 1973. Robert Merton also participated i...
Bollinger Bands are used as a technical analysis indicator. They are formed by using a 20-day moving average as a centerline and then tracing two bands, each one standard deviation wide, on either si...
Breadth of market theory refers to a concept that the number of securities rising or falling in a market can predict the future strength of that market. The breadth of market theory is employed in t...
Broken dates, also known as "odd dates," are arbitrary maturity dates that do not necessarily match the duration of the bond, option, futures contract, forward contract or other maturing instrument....
A bullish engulfing pattern occurs in the candlestick chart of a security when a large white candlestick fully engulfs the smaller black candlestick from the period before. This pattern usually occu...
A buy-write is an options strategy whereby an investor writes (sells) a call option at the same time he/she buys the underlying. In a buy-write, which is very similar to a covered call, an investor ...
A calculation agent is a person or company that calculates how much the parties to certain derivatives owe each other. For example, consider an interest rate swap, which is a contractual agreement b...
A call on a call is a type of compound option. It is a call option on a call option. A call on a call is just one type of compound option; there are also puts on puts, puts on calls, and calls on pu...
A call on a put is a type of compound option. It is a call option on a put option. A call on a put is just one type of compound option; others include the put on a put, put on a call and call on a c...
A call option is a contract between a buyer and a seller that gives the option buyer the right (but not the obligation) to buy an underlying asset at the strike price on or before the expiration date...
The phrase call over is used to describe the exercising of a call option. A call option gives its owner the right to buy an asset at a set price (the strike price) on or before a certain day (the ex...
A call premium is the price of a call option. It is not the same as the strike price.  Supply and demand of the call option determines its premium, but the famous Black-Scholes options pricing mode...
A call ratio backspread is a trading strategy whereby an investor uses long and short option positions to simultaneously hedge against loss and maximize profit if stock prices go up. The strategy dif...
Call warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities (usually the issuer's common stock) at a certain price before a certain time...
A callable security gives the issuer or a third party the right but not the obligation to repurchase the security at a specific price after a certain time. Let's assume you own 100 shares of Company...
"Called away" refers to an investing scenario in which one party to an options contract has the obligation to deliver an underlying asset to the other party to the contract. There are three common s...
A cambist is an expert in foreign exchange. In the old days, a cambist relied on interpreting books of information about exchange rates between various currencies. The term comes from the Latin root...
Candlestick charts are often used in technical analysis to track price movements of securities, derivatives and currency over time. Each candlestick is made up of three parts: the upper shadow, the ...
Also called the spot price or the current price, a cash price is the current price of a commodity if it were to be sold or purchased today. For example, if you purchase a cup of coffee in a restaura...
A cash settlement is a payment in cash for the value of a stock or commodity underlying an options or futures contract upon exercise or expiration. Options and futures contracts are valued based on ...
A Chartered Market Technician (CMT) is an individual who has been certified by the Market Technicians Association. The Market Technicians Association (MTA) grants the Chartered Market Technician (CM...
The Chicago Board of Trade (CBOT) is a commodity futures and options exchange. Several dozen types of contracts trade on the CBOT, and the exchange facilitates hundreds of millions of these trades ea...
The Chicago Board Options Exchange (CBOE) is an exchange used for trading standardized options contracts, including stock options, LEAPS, interest rate options, foreign currency options, and index op...
A clean up call, also known as a calamity call, is a feature of a collateralized mortgage obligation (CMO) that requires the issuer to pay off a portion of the CMO if the underlying mortgages don't g...
A collar option strategy, also known as a "hedge wrapper," is used to lock in the maximum gain and maximum loss of a stock. To execute a collar, an investor buys a stock and an out-of-the-money put o...
A combination trade is an option strategy where the trader takes a position in both call and put options in the same underlying stock. While there are multiple types of combination trades, in this se...
A compound option is the opportunity to buy or sell an option. Let’s assume John Doe buys a call on an option to purchase 100 shares of Company XYZ at $25 per share by March 31. He pays $1,000 to ...
A covered call is a call option that is sold against stock an investor already owns. For example, assume that on January 1, Charlie owns 100 shares of IBM stock. IBM currently trades at $100, but Ch...
A credit default swap (CDS) protects lenders in the event of default on the part of the borrower by transferring the associated risk in return for periodic income payments. In a credit default swap...
A credit derivative is a financial instrument thats value is determined by the default risk of an underlying asset. Credit derivatives allow a lender or borrower to transfer the default risk of a lo...
Currency risk, also called foreign-exchange risk or exchange-rate risk, is the risk that changes in the relative value of certain currencies will reduce the value of investments denominated in a fore...
D-mark is slang for deutschmark, the national currency of Germany until it joined the European Union in 2002. For example, let's say you're at a cocktail party looking to impress some Wall Street cu...
Daily cut-off is a term signifying the end of the trading day for foreign exchange markets. For example, let’s look at the markets for Japanese and American currencies. Foreign exchange traders i...
Named after famous ballroom dancer Nicolas Darvas, the Darvas box theory is a trading technique based on 52-week highs and volumes. To implement a Darvas box technique, an investor simply looks at s...
Data smoothing is a statistical technique that involves removing outliers from a data set in order to make a pattern more visible. For example, let's say that a university is analyzing its crime dat...
A death cross is a technical indicator that occurs when a stock's short-term moving average falls below its long-term moving average. Market technicians believe moving averages define the trend and ...
A deferred payment option is an option contract for which the payment is deferred until, and paid not sooner than, the contract’s expiration date. A deferred payment option operates no differently...
A delivery option is incorporated into an interest rate future contract and allows the writer to specify the time and place of delivery as well as the asset to be delivered. An interest rate future ...
Delta is the ratio comparing the change in price of an underlying asset to the change in price of a derivative. It is one of the four main statistics, known as "Greeks," used to analyze derivatives. ...
A derivative is a financial contract with a value that is derived from an underlying asset. Derivatives have no direct value in and of themselves -- their value is based on the expected future price ...
The descending triangle is a pattern observed in technical analysis. It is the bearish counterpart of the bullish ascending triangle pattern. The trendline connecting peak price levels should be down...
A detachable warrant is a warrant that can be sold separately from the security to which it was originally attached. Warrants are securities that give the holder the right, but not the obligation, t...
Devaluation refers to a decrease in a currency's value with respect to other currencies. A currency is considered devalued when it loses value relative to other currencies in the foreign exchange ma...
A doji candlestick is a significant signal in the technical analysis of financially traded assets. If prices finish very close to the same level (so that no body or a very small real body is visib...
The double bottom -- one of the many charting patterns used in technical analysis -- is characterized by a fall in price, followed by a rebound, followed by another drop to a level roughly similar to...
Dow Theory is an analysis that explores the relationship between the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA). When one of these averages climbs to an inter...
A dragonfly doji is the most uncommon candle of the four different types of doji candlesticks. As with any doji, the dragonfly depicts a situation in which supply and demand are in equilibrium, thus ...
E-micro forex futures are currency futures contracts that are a 10th the size of a standard futures contract.  Forex futures are financial contracts giving the buyer an obligation to purchase a ce...
An E-mini is a stock index futures contract that is electronically traded on the Chicago Mercantile Exchange (CME) and is 1/5 the size of a standard stock index futures contract. An E-mini S&P 5...
Early exercise refers to a situation in which an option holder has the right to exercise or assign an option before its expiration date. The option holder may decide to exercise the option before it...
An ECN broker is a person who uses electronic communications networks to give clients access to buyers and sellers in the currency markets. An ECN broker is sort of like a market maker for currency ...
An embedded option is a provision in a security (typically a bond) that gives either the issuer (the company) or the investor the right to take some action in the future. Different from a stand alon...
An Equity Linked Foreign Exchange Option (or ELF-X) is a put option or call option that shelters an investor from foreign exchange risk. It enables an investor to sell a foreign stock position or por...
A European option is a type of put or call option that can be exercised only on its expiration date. Suppose an investor, John, buys a European call option on March 1st that expires on the third Fri...
The bearish evening star candlestick formation is a major reversal candlestick pattern. In many cases, only one candle is necessary to put a trader on high alert that a reversal may be happening. Fo...
An exchange rate between two countries' currencies indicates the value of one currency relative to the other.  Let's say the current exchange rate between the dollar and the euro is 1.23 $/€. Thi...
Exchange-rate risk, also called currency risk, is the risk that changes in the relative value of certain currencies will reduce the value of investments denominated in a foreign currency. Exchange-r...
An exercise price is the price at which the holder of a call option has the right, but not the obligation, to purchase 100 shares of a particular underlying stock by the expiration date. Options are...
An exotic option is any option contract comprising attributes not common to most contracts which result in complicated valuation schemes. It is the opposite of a plain vanilla option. Exotic options...
The expiration date is the last day an options contract can be exercised. After that, the contract becomes null and void. When an options contract is written, the expiration date is specified as on...
An exponential moving average (EMA) is a moving average for time-series data which places greater weight on more recent data. An exponential moving average places exponentially greater weight on dat...
FactSet is a financial data and software company. FactSet's software platform offers real-time news, quotes and tools that help analysts screen for certain securities and test portfolio models. The ...
A fixed exchange rate pegs one country's currency to another country’s currency. It is also known as a pegged exchange rate. There are generally two ways in which countries can value their currenc...
The flag formation is a technical analysis pattern that occurs when there is a straight upward move in a stock.  The flag formation movement is often nearly vertical, and at the very least is extr...
A floating exchange rate refers to changes in a currency's value relative to another currency (or currencies). Floating exchange rates mean that currencies change in relative value all the time. Fo...
Foreign currency effects refer to the fluctuations in returns on offshore investments as a result of changes in the value of the investment's denominated currency against that of the domestic currenc...
Foreign Exchange, also known as  Forex or FX, is an over-the-counter market. Forex trading is how individuals, banks, and businesses convert one currency into another.  It is considered the largest...
Foreign-exchange risk refers to the potential for loss from exposure to foreign exchange rate fluctuations. Foreign-exchange risk is similar to currency risk and exchange-rate risk. Foreign-exchange...
A forward contract is a private agreement between two parties. It simultaneously obligates the buyer to purchase an asset and the seller to sell the asset (at a set price at a future point in time). ...
Usually reserved for discussions about Treasuries, the forward rate (also called the forward yield) is the theoretical, expected yield on a bond several months or years from now. The yield curve dic...
Futures are financial contracts giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time. Futures are also called ...
Futures contracts give the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time. The assets often traded in futures contr...
Futures markets are places (exchanges) to buy and sell futures contracts. There are several futures exchanges. Common ones include The New York Mercantile Exchange, the Chicago Board of Trade, the Ch...
The hammer candlestick is a technical indicator that typically appears after a prolonged downtrend. Here is an example of a hammer candlestick: During the period of the hammer candlestick, the stoc...
The hangman candlestick has a very long shadow and a very small real body. Typically, it has no upper shadow (or at the very most, an extremely small one). To be an official hangman, the lower shadow...
Hard currency is currency that has been adopted as an acceptable payment method in multiple countries. Hard currencies are generally issued by developed countries that have a strong industrial econo...
A hard loan is a loan between a lender and borrower in different countries that is denominated in a hard currency. For example, a hard loan from a lender in Cambodia to a borrower in Thailand may be...
The head and shoulders pattern consists of four distinct parts: The left shoulder, the head, the right shoulder, and the neckline. Each of these four must be present for the formation to exist. To b...
A hedgelet is a binary futures contract whose payoff is conditional upon a specific economic occurrence. A hedgelet is a futures contract which hedges that a specific event (for example, movements i...
The high wave candlestick has a very small real body, and it typifies a stock or index plagued by uncertainty.  The spinning top has small upper and lower shadows, whereas in the high wave the shado...
The Hindenburg Omen is a technical indictor that attempts to predict market crashes. The Hindenburg Omen is triggered when three complex conditions are met: 1) The number of new daily 52-week highs ...
An Incentive share option, or ISO, is a type of company share option granted exclusively to employees.  It confers an income tax benefit when exercised. ISOs are also referred to as "incentive stock...
Incentive stock option (ISO) is a type of company stock option granted exclusively to employees. It gives the employee the right, but not the obligation, to purchase shares of a company, usually the ...
Introduced in 1981, index options are call or put options on a financial index comprising many stocks.  Index options usually have a contract multiplier of $100, meaning that the price of an index ...
An international currency exchange rate is the rate at which one currency converts to another. For example, if the international currency exchange rate for one U.S. dollar to one Canadian dollar is ...
A key currency is a currency used to set the exchange rate in an international transaction. Let's say Country A has a tiny economy and an unstable government. As a result, the value of its currency ...
A key reversal is a one-day trading pattern that may signal the reversal of a trend. Other frequently-used names for key reversal include "one-day reversal" and "reversal day." Depending on which wa...
A ladder option is an option contract that allows the holder to earn a profit as long as the underlying asset's market price reaches one or more strike prices before the option expires. A traditiona...
The last trading day is the last time traders may trade a derivative contract before it expires. Derivative contracts (for example, options and futures) have an expiration date, at which time the te...
A long straddle is an options trading strategy that involves purchasing both a call option and a put option for a particular asset with identical strike prices and expiration dates. Because a long s...
Long-legged doji candlesticks are one of four types of dojis -- common, long-legged, dragonfly and gravestone. All dojis are marked by the fact that prices opened and closed at the same level. If pri...
Long-Term Equity AnticiPation Securities (LEAPS) is a registered trademark of the Chicago Board Options Exchange (CBOE). LEAPS are virtually identical to traditional exchange-traded options, but they...
A major downtrend, or bear market, is when financial assets and markets -- as with the broader economy -- fall steadily for an extended period of time. A major downtrend is when each successive decl...
Major pairs are the four pairs of currencies that are most commonly traded in the foreign exchange markets. The major pairs are Euro/U.S. Dollar (EUR/USD); U.S. Dollar/Japanese Yen (USD/JPY); U.S. D...
A major uptrend, or bull market, is when financial assets and markets -- as with the broader economy -- move in an upward direction for extended periods of time. A major uptrend is when each...
A market index target-term security (MITTS) is a debt security that offers potential upside based on gains in a market index while limiting downside losses by guaranteeing the initial investment will...
The Market Technicians Association (MTA) is a professional association for technical analysts. The MTA is a nonprofit association that fosters an environment of ethics and professionalism among Char...
The McClellan Oscillator was first designed by Sherman and Marian McClellan in 1969. It is an excellent tool for determining the overbought or oversold condition of the stock market. The McClellan O...
The measuring principle allows traders to set a specific minimum price target when trading a stock. This technique works with any well-defined technical analysis pattern, such as a head and shoulders...
Mini-sized Dow options are leveraged option contracts that use the Dow Jones Industrial Average as the underlying asset. Bought and sold on the Chicago Board of Trade (CBOT), mini-sized Dow options ...
A minimum price contract is a futures contract with a price floor. A minimum price contract has a provision that places a lower limit on the price of a futures contract's underlying asset. For examp...
A minor downtrend is a corrective movement in the market -- lasting less than three weeks -- that goes against the direction of a secondary uptrend. The minor trend is the last of the three trend ty...
A minor uptrend is a corrective movement in the market -- lasting less than three weeks – that goes against the direction of a secondary downtrend. The minor trend is the last of the three trend t...
The moving average is a popular technical indicator which investors use to analyze price trends. It is simply a security's average closing price over the last specified number of days. Some of the m...
Moving Average Convergence Divergence, or MACD (pronounced "Mack-Dee") is a technical analysis indicator developed by famous market technician Gerald Appel.  The MACD is used by traders to determin...
A naked call is an options strategy in which an investor sells a call option unassociated with units of the underlying security. In a naked call strategy, the sale of a call option is predicated on ...
Naked option refers to an option contract which does not comprise ownership of the underlying security by the purchasing or selling party. It is the opposite of a covered option. Also called an unco...
Naked position refers to any securities holding which has not been hedged for risk by any accompanying options or futures contracts. A naked position in a given security is exposed entirely to fluct...
A naked put is a put option which is unaccompanied by the actual units of the underlying security specified in the contract. The seller, or writer, of a naked put option incorporates a specific qua...
A naked warrant is a warrant that is not attached to a bond or preferred stock. Warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities ...
In the futures market, a narrow basis occurs when the spot price of a commodity is close to the futures price of the same commodity. For example, let's say the price of a bushel of wheat is $1 right...
Used in foreign exchange (forex), a negative carry pair refers to a situation in which the investor buys the currency of a country with low interest rates and shorts the currency of a country with hi...
Negative correlation describes a relationship in which changes in one variable are associated with opposite changes in another variable. For example, many economists have discovered that people tend...
A negative directional indicator (known as negative DI) is a technical measure of a downtrend's momentum. Mathematically speaking, a negative directional indicator exists when the difference in a s...
Net interest rate differential is the difference in interest rates associated with two different currencies or two different economic regions. For example, let's assume an investor in Japan puts her...
A net option premium is the difference between the price paid to purchase an option and the price received from the sale of a different option. The formula for net option premium is: Net Option Prem...
Net present value (NPV) reflects a company’s estimate of the possible profit (or loss) from an investment in a project. Companies must weigh the benefits of adding projects versus the benefits of h...
As the name implies, new highs/new lows represents the number of all stocks making new 52-week highs or lows. The result is graphed, and the aggregate number of new highs and new lows is used as a ma...
Noncallable refers to a security that cannot be redeemed by the issuer prior to maturity.  Sometimes, it is referred to as non-redeemable. When a security is issued, it carries a set term (the time...
A nonqualified option (NQO) is the right but not the obligation to purchase shares of a company, usually the option holder's employer, for a fixed price by a certain date. Option grants are incentiv...
Notional principal amounts never change in an interest rate swap, and they are the core of the calculations involved in these transactions. An interest rate swap is a contractual agreement between t...
Notional values are most discussed in derivatives and currency transactions because those transactions often involve hedging, which means that a small amount of money can influence a very large inves...
OEX is the ticker symbol of index options on the S&P 100, which trade on the Chicago Board Options Exchange (CBOE). The Standard & Poor's 100 index (S&P 100) is a subset of the famous S...
An offset is a transaction that cancels out the effects of another transaction. Offsetting transactions are common in options and futures markets. For example, let's say John Doe sells an option to ...
An offsetting transaction is a transaction that cancels out the effects of another transaction. Offsetting transactions are common in options and futures markets. For example, let's say John Doe sel...
An offshore banking unit is a bank branch in another country. For example, let's assume that Bank XYZ is an American bank with a branch in Bermuda. As on offshore banking unit, the Bermuda branch do...
On Balance Volume (OBV) was designed by Joseph Granville to track the flow of volume in and out of a stock or index. Essentially, OBV is a running total of volume. An OBV line typically takes the for...
Open outcry is a trading mechanism that uses verbal bids and offers. It is usually conducted in trading pits on futures and options exchanges. Open outcry is not just vocal. It involves a series of ...
An option is a financial contract that gives an investor the right, but not the obligation, to either buy or sell an asset at a pre-determined price (known as the strike price) by a specified date (k...
Option pricing theory is the theory of how options are valued in the market. The Black-Scholes model is the most common option pricing theory. All options are derivative instruments, meaning tha...
The Options Clearing Corporation (OCC) is a clearinghouse for equity options and is a guarantor of the obligations in listed options contracts.  The OCC confirms, certifies and clears contract trad...
Options contracts are agreements between a buyer and seller which give the buyer the right to buy or sell a particular asset at a later date (expiration date) and an agreed-upon price (strike price)...
"Out of the money" describes an option that is worthless if exercised today. In the case of a call option, the option has no intrinsic value because the current price of the underlying stock is less ...
In finance, a perfect hedge is an investing strategy intended to protect an investment or portfolio against all losses. It usually involves securities that move in the opposite direction than the ass...
A point-and-figure chart is a graph which records discrete price changes without accounting for an associated period of time. They are often used in technical analysis as a means of predicting future...
Portfolio hedging describes a variety of techniques used by investment managers, individual investors and corporations to reduce risk exposure in an investment portfolio. Hedging uses one investment ...
Price action is a term often used in technical analysis to interpret and describe price movements of securities.  Technical trading revolves around chart and pattern analysis, and when patterns cha...
A price by volume (PBV) chart is a horizontal histogram that shows a cumulative total of how many shares of a stock traded at a given price. Mechanically speaking, a PBV chart is simply price, plott...
In technical analysis, a price channel is an upper limit (called the resistance) and a lower limit (called the support) in which a security's price tends to stay. Price channels can slope up (indica...
Also called relative strength, price persistence is the tendency of a security's price to stay on trend relative to a market index such as the S&P 500. It is a measure of momentum. For example, ...
The price rate of change is simply the percentage change in a security's price between two periods.  The formula for the price rate of change is: Price Rate of Change = (Price at Time B - Price at ...
A price-based option is a derivative based on the price of an underlying debt security, usually a bond. A price-based option gives the holder the right, but not the obligation, to purchase or sell (...
A put option is a financial contract between the buyer and seller of a securities option allowing the buyer to force the seller (or the writer of the option contract) to buy the security. In options...
Put-call parity refers to the relationship between put and call options for a given security, strike price and expiration date. Under put-call parity, the option prices should match, yielding no prof...
A qualifying disposition is the sale, transfer or exchange of stock that an investor acquires from an incentive stock option (ISO) or employee stock purchase plan (ESPP) and is taxed at the capital g...
Qualitative analysis is the use of non-quantifiable methods to evaluate investment or business opportunities and make decisions. This is different from quantitative analysis, which relies on a compan...
Quantitative analysis is the use of math and statistical methods to evaluate investment or business opportunities and make decisions. In portfolio management, quantitative analysis is often used to ...
Also called secondary currency or counter currency, a quote currency is the currency being purchased in a currency pair. Four main pairs of currencies are most commonly traded in the foreign excha...
R-squared, usually represented as R2, is a technique that evaluates the statistical relationship between two series of events. It is commonly used to describe the portion of a security's movement in ...
A rainbow option is an option linked to two or more underlying assets. Just as rainbows have many colors, options can have many underlying assets. A Margrabe option, for example, gives the buyer the...
Rate of Change (ROC), is the percentage change in price over a specified time frame. It is one of the most basic ways to measure momentum. To calculate ROC, you divide the current price by an earlie...
A rectangle formation describes a price pattern where supply and demand are in approximate balance for an extended period of time. In such a scenario, the shares tend to move in a narrow range, hitti...
Regression is a statistical method used in finance and other fields to make predictions based on observed values. It is a measure of how correlated a group of actual observations are to a model’s p...
Also called price persistence, relative strength is the tendency of a security's price to follow the trend of an index like the S&P 500. It is a measure of momentum. To illustrate, let's assume ...
The Relative Strength Index (RSI) was first developed by renowned technical analyst J. Welles Wilder. It is not to be confused with relative strength, which compares a stock's price performance to th...
The relative strength line compares a stock's price performance against that of the overall market, usually as measured by the S&P 500. However, if the trader desires, the comparison can be made ...
Also called systematic risk or non-diversifiable risk, relevant risk is the fluctuation of returns caused by the macroeconomic factors that affect all risky assets.  Diversifiable risk is the risk ...
In technical trading analysis, resistance is an upper limit in a price channel in which a security’s price tends to stay. Price channels can slope up (indicating bullish sentiment) or down (indica...
The RSI indicator mirrors and anticipates price patterns in the underlying stock or index chart. The indicator's designer, Welles Wilder, intended for the RSI Indicator to help traders spot chart for...
The "rule of 72" is a method of estimating how long it will take compounding interest to double an investment. The rule of 72 is a method used in finance to quickly estimate the doubling or halving ...
A runs test is a statistical procedure that can be used to decide if a data set is being generated randomly, or if there is some underlying variable that is driving results. If data points are rando...
A Russian option is a type of lookback option which does not have an expiration date. As a lookback option, a Russian option may be exercised according to American or mid-Atlantic settlement rules b...
The shooting star candlestick is a chart formation consisting of a candlestick with a small real body, and a large upper shadow. This pattern represents a potential reversal in an uptrend. It is also...
Spinning tops have small real bodies, and they portray a stock or index plagued by uncertainty. The spinning top has small upper and lower shadows. The spinning top candle looks like this: Spinnin...
Springs are false breakouts that can trap the unsuspecting trader. Spring patterns quickly reverse, with the stock or index then often testing the opposite end of the trading range. A spring is a fal...
Springs and upthrusts are false breakouts that can trap the unsuspecting trader. Both patterns quickly reverse, with the stock or index then often testing the opposite end of the trading range. A spr...
The stochastics indicator is a momentum indicator that shows the location of the current closing price relative to the high/low range over a set number of periods. The stochastics indicator tries to...
A stock option gives the holder the right, but not the obligation, to purchase (or sell) 100 shares of a particular underlying stock at a specified strike price on or before the option's expiration d...
Straight line basis refers to a method of calculating the depreciation of an asset.  Straight Line Basis calculates depreciation which is an accounting measure of the "loss" of value of an asset ov...
Strike price, also referred to as “exercise price,” is the specific price at which an investor can exercise an option to buy or sell an option contract’s underlying security, such as stocks, bo...
Subscription privileges are a clause in an option, security, or merger agreement that gives the investor the right to maintain his or her percentage ownership of a company by buying a proportionate n...
Subscription rights are a clause in an option, security, or merger agreement that gives the investor the right to maintain his or her percentage ownership of a company by buying a proportionate numbe...
In technical trading analysis, support is a lower limit in a price channel in which a security’s price tends to stay. Price channels can slope up (indicating bullish sentiment) or down (indicating...
A support level is the price at which stock buyers jump in to purchase shares, establishing a floor beneath which it's difficult for the price to fall. Support, along with its cousin, resistance, ar...
A swap spread is the difference between the fixed rate component of a given swap and the yield on a Treasury item or other fixed-income investment with a similar maturity. Companies engage in swaps ...
Swing trading is a short-term strategy used by traders to buy and sell stocks whose technical indicators suggest an upward or downward trend in the near future -- generally one day to two weeks. Swi...
The symmetrical triangle is one of three important triangle patterns defined in classical technical analysis. The other two triangles are the bullish ascending triangle pattern and the bearish descen...
A synthetic collateralized debt obligation is a collateralized security which is backed by derivatives such as swaps and options contracts. A synthetic collateralized debt obligation, commonly calle...
A synthetic futures contract comprises call options accompanied by put options in order to imitate the attributes of a futures contract. A synthetic long futures contract can be simulated using a sh...
Also called market risk or non-diversifiable risk, systematic risk is the fluctuation of returns caused by the macroeconomic factors that affect all risky assets.  Unsystematic risk is the risk that...
Technical analysis is a methodology that makes buy and sell decisions using market statistics. It primarily involves studying charts showing the trading history and statistics for whatever security i...
A technical rally is a price increase brought on by traders reacting to signals from technical analysis. A technical rally occurs after a security has experienced a substantial price decline and beg...
In the options trading world, there are two components that make up an option's price. The first is intrinsic value (which accounts for the underlying security's perceived value), and the second is t...
A trailing stop loss order (or trailing-stop) is a special type of trade stop order that manages risk and offers profit protection. This exit strategy adjusts the stop price of a stock or stocks by a...
Trend analysis is a technical analysis of the movement of a stock based on past performance. A trend analysis is a method of analysis that allows traders to predict what will happen with a stock in ...
The tweezers candlestick pattern is a formation that always involves two candles. At a tweezers top, the high price of two nearby sessions are identical, or very nearly so. Conversely, a tweezers bot...
Also known as “being naked,” an uncovered option is the sale of an option involving securities the seller does not own. It is the opposite of a covered option. For example, the safest way to sel...
An underlying asset is a security on which a derivative is based. For example, options are derivative instruments, meaning that their prices are derived from the price of another security. More spec...
An underlying security is an asset that a derivative instrument (e.g. futures, options) derives its value from. In essence, it’s a stock, bond, currency, commodity, index, or interest rate used as ...
A vanilla option refers to a normal option with no special features, terms, or conditions. Options come in a variety of "flavors." A plain vanilla option offers the right to purchase or sell an und...
Variability is the degree to which a data series deviates from its mean (or in the accounting world, how much a budgeted value differs from an actual value). For example, let's say Company XYZ stock...
A vest fleece occurs when a company accelerates the vesting of its employee stock options. For example, let's assume that John Doe receives options to buy 2,000 shares of Company XYZ, his employer, ...
Warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities (usually the issuer's common stock) at a certain price before a certain time. War...
Warrant coverage is an agreement to provide warrants to a shareholder. Warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities (usually ...
A warrant premium is the percentage difference between the market price of a security and the price an investor pays for that security when buying and exercising a warrant. The formula for the warran...
A weak currency is a currency that is going down in value. A currency's value fluctuates all the time. Sometimes you can buy more with a certain amount of currency, and sometimes you can buy less....
A weak dollar is used to describe the United States' currency decreasing in value relative to other currencies. The dollar's value is fluctuating all the time. Sometimes you can buy more with a cert...
Weak longs are investors who buy a stock (known as being "long"), but who will sell it at the first sign of a price decline. Weak longs tend to be traders, not investors. Short-term traders typicall...
Weak shorts are investors who short sell a stock (known as being "short"), but who will buy it back at the first sign of a price increase. Short-term traders typically only enter a short position lo...
The witching hour is the last hour of the trading day. The witching hour occurs between 3 and 4 p.m. EST. This is when traders often rush to close out their positions, and thus trading volume can be...
Xenocurrency is a currency that trades in foreign markets. For example, Euros trade in American markets, making the Euro a xenocurrency. Xenocurrency is basically foreign currency. The world is ful...
An XPO is a perpetual option. An option gives the holder the right, but not the obligation, to purchase (or sell) 100 units of a particular underlying security at a specified strike price on or befo...
A zero cost collar is a short-term option trading strategy that offsets the volatility risk by purchasing a cap and a floor for the price of a derivative. A zero cost collar strategy would combine t...
In finance, a zero-sum game refers to trades or investments in which one investor gains when another investor loses. Futures and options trading is generally a zero-sum game; that is, if somebody ma...