Market Conventions
Every market has habits that are obvious to the people in it and invisible to everyone else: which day count, which settlement cycle, whether the price or the yield is quoted, what a "point" means. Getting one wrong changes an answer without producing an error message. This page collects the ones that matter most, for reference rather than reading. Education only — conventions vary by venue and jurisdiction and they change, so treat this as orientation and verify against the contract.
Day count conventions
| Convention | Interest for a period | Where you meet it |
|---|---|---|
| ACT/ACT | Actual days ÷ actual days in the year | Most government bonds |
| 30/360 | Every month 30 days, year 360 | US and many European corporate bonds |
| ACT/360 | Actual days ÷ 360 | Money markets, floating-rate notes, most USD/EUR swaps |
| ACT/365 (fixed) | Actual days ÷ 365 | Sterling markets, several Asian markets |
| 30E/360 | European 30/360 variant | Eurobonds |
ACT/360 versus ACT/365 on the same nominal rate differs by about 1.4% of the rate — 5.00% on one basis is roughly 5.07% on the other. Small per period, and enough to make two identical-looking quotes disagree.
Settlement cycles
| Instrument | Typical settlement | Note |
|---|---|---|
| Equities (most markets) | T+1 or T+2 | Several markets moved to T+1 recently; check locally |
| Government bonds | T+1 | T+0 for some money-market instruments |
| Corporate bonds | T+2 | Longer for new issues |
| FX spot | T+2 | T+1 for USD/CAD; T+0 possible by agreement |
| Listed options | T+1 | Exercise and assignment run overnight |
| Mutual funds | T+1 to T+4 | Priced once daily at a cut-off |
| Repo | T+0 to T+2 | Overnight is the dominant tenor |
Accrued interest is always calculated to the settlement date, not the trade date — one of the more common sources of a small unexplained difference.
What is quoted, by asset class
| Market | Quoted as | Watch out for |
|---|---|---|
| Government bonds | Clean price per 100 | You pay the dirty price |
| Money markets | Yield, often discount basis | Discount yield ≠ bond-equivalent yield |
| Credit | Spread over a reference | G-, I-, Z- and asset-swap spreads all differ |
| Interest rate swaps | Fixed rate | Which curve discounts it |
| FX spot | Base/quote, e.g. EUR/USD | The first currency is the base |
| FX forwards | Forward points, not an outright | Points are added to or subtracted from spot |
| FX options | Implied volatility | Delta-referenced strikes, not absolute ones |
| Equity options | Premium per share | Multiply by the contract multiplier |
| Commodity futures | Price per unit | Unit and grade are contract-specific |
The units people mix up
| Unit | Means | Where it bites |
|---|---|---|
| Basis point | 0.01% = 0.0001 | "25 bp" is a quarter of one percent |
| Percentage point | An absolute difference | 4% to 5% is +1 point and +25% relative |
| Pip (FX) | Usually the fourth decimal | Second decimal for JPY pairs |
| Tick | Minimum price increment | Contract-specific; bond futures often 1/32 |
| Big figure | The part of an FX quote traders omit | "Fifty bid" assumes you know the handle |
| DV01 / PV01 | Value change per 1 bp | Per million of notional unless stated |
Compounding and rate bases
- Annual, semi-annual, quarterly, continuous — the same nominal rate produces different effective returns. Convert before comparing anything: the effective-yield calculator does it in one line.
- US Treasury bonds quote semi-annual yields; most European government bonds quote annual. A direct comparison of the two headline numbers is wrong by roughly the compounding difference.
- Money-market discount yield understates the true return, because the discount is taken on face value rather than on the price paid. The T-bill calculator shows all three measures side by side.
- Swap rates are quoted against a specific floating index and frequency. "The 5-year swap rate" is incomplete without both.
Business day conventions
- Following — move a non-business date forward to the next business day.
- Modified following — as above, unless that crosses into the next month, in which case move back. The most common convention in swaps.
- Preceding — move back to the previous business day.
- End-of-month rule — if the start date is the last business day of a month, all subsequent dates are too.
- Holiday calendars are currency-specific and a cross-currency trade uses both. This is a genuine source of settlement failures and never appears in a textbook formula.
Rounding and precision
- Bond prices: usually three decimals; US Treasuries often in 32nds ("99-16" is 99.5).
- Yields: three decimals is standard, and the third one matters on long duration.
- FX: four decimals for most pairs, two for JPY crosses, and more on some emerging-market pairs.
- Rounding rules are contractual for anything that settles against a number — an index level, a fixing, an average. On a large notional the rounding convention is a real amount.
Information and education only. Conventions differ by market, venue, currency and instrument, and they change. This table is orientation for reading and learning, not a substitute for the contract, the exchange rulebook or the terms of any specific instrument.