Glossary

The vocabulary of markets — 233 terms, defined in plain English. Type in the box to narrow the list. Every term links into the atlas where a full page exists. Like everything on this site, these definitions are for information and education only — they are not advice, and they simplify on purpose. See the full disclaimer. For a guided route through the atlas, try the learning paths — or drill the vocabulary with the flashcard deck.

A

Accretion / dilution: Whether an acquisition raises or lowers the acquirer's earnings per share in year one. Driven mostly by how the deal is financed rather than by whether the price was sensible — a financing statement, not a valuation.
Accrued interest: Interest a bond has earned since its last coupon but not yet paid out. Buyers pay it to sellers on top of the quoted ("clean") price — the all-in amount is the "dirty" price.
Alpha: Return above what a portfolio's market exposure alone would have delivered — the part attributable to skill (or luck). The industry's scarcest commodity and its most-claimed one.
Altman Z-score: A 1968 discriminant model combining five accounting ratios into one distress score. Above 2.99 is the safe zone, below 1.81 the distress zone. Built on US manufacturers and a screen rather than a rating.
American / European option: Exercise styles, not geographies: American options can be exercised any time before expiry, European only at expiry. Most index options are European; most single-stock options American.
Amortisation: Paying down a loan's principal gradually over its life rather than all at maturity — the reason a mortgage payment is part interest, part repayment.
Arbitrage: Profiting from the same thing trading at two prices, with no risk in theory. Pure arbitrage is nearly extinct; what practitioners call "arb" is usually a bet that two prices will converge — which is a risk, not an arbitrage.
Ask / Offer: The price at which the market will sell to you. You buy at the ask, sell at the bid; the gap between them is the market maker's compensation.
Asset allocation: The split of a portfolio across asset classes — equities, bonds, cash, alternatives. Decades of evidence say this choice drives most of a portfolio's risk and return; security selection fights over the remainder.
Asset class: A family of investments that behave similarly and are analysed alike — equities, fixed income, commodities, currencies. The eleven sections of this atlas.
Asset swap spread (ASW): The spread over the reference rate earned by buying a bond and swapping its fixed coupons for floating. Isolates credit compensation from interest-rate risk. Diverges from the Z-spread when the bond trades away from par, because the price difference is amortised through the swap.
Asset-swap spread (ASW): The spread over the floating rate you can lock in by buying a bond and swapping its fixed coupons to floating. A traded package, not just a calculation — the bank book's natural credit measure. See the spread measures concept page.
At the money (ATM): An option whose strike sits at the current market price. The point of maximum uncertainty — and maximum time value.

B

Bail-in: Imposing a failing bank's losses on shareholders and specific creditor layers instead of taxpayers. The hierarchy is set by the instruments' own documents and the resolution statute, which is how AT1 went to zero above equity in 2023.
Barbell: A bond position split between very short and very long maturities to match a target duration. Carries more convexity than a bullet of the same duration, and a completely different curve exposure.
Basis: The price difference between two closely related instruments — a future versus its spot, a bond versus its CDS, onshore versus offshore pricing. Small in calm markets, informative in stressed ones; see basis swaps.
Basis point (bp): One hundredth of a percentage point: 0.01%. The natural unit of rates and spreads — "the Fed cut 25 basis points" means 0.25%.
Basis risk: The risk that a hedge and the thing it hedges don't move identically. Hedging jet fuel with crude futures works — until the gap between them moves against you.
Bear / Bull market: Falling / rising market, conventionally −20% / +20% from the last turning point. Bears sell, bulls buy; both are certain.
Behaviour gap: The shortfall between a fund's reported return and the return its average investor actually earned, caused by money arriving after good years and leaving after bad ones. Widest in the most volatile products.
Benchmark: The index a portfolio is measured against. Choosing it is half the battle: beat a badly chosen benchmark and you've measured nothing.
Beta: How much an asset moves per 1% move of the overall market. Beta 1.3: amplifies the market; beta 0.5: dampens it. Cheap to obtain — which is why paying alpha fees for beta is the classic investor mistake.
Bid: The price at which the market will buy from you. See Ask.
Bid–ask spread: The gap between the best buying and selling price — the visible cost of trading and the market maker's income. Tight in liquid markets, a chasm in stressed or obscure ones.
Bootstrapping: Extracting zero-coupon rates and discount factors from quoted par yields, solving date by date so each solved factor unlocks the next. The step between a quoted curve and a usable one.
Breakeven inflation: Nominal bond yield minus the real yield of an inflation-linked bond of the same maturity — the inflation rate at which both pay the same. The market's inflation forecast, updated by the second.
Bullet: A bond position concentrated at a single maturity. The counterpart to a barbell: less convexity at the same duration, and risk located at one point on the curve.
Buyback: A company repurchasing its own shares, shrinking the share count and concentrating ownership — economically a flexible cousin of the dividend, and the dominant form of payout in US markets.

C

CAGR: Compound annual growth rate — the single yearly rate that would turn the starting value into the ending value. The honest way to average multi-year returns; arithmetic averages flatter volatile paths.
Call option: The right — not the obligation — to buy at a fixed price by a set date. The basic unit of upside. See equity options.
Cap rate: Net operating income divided by a property's price — the unlevered yield on real estate. When it falls below the mortgage rate, leverage subtracts from the equity return instead of adding to it.
Capital structure: The ranking of everyone with a claim on a company: secured loans, senior bonds, subordinated debt, preferred, equity. In distress the order becomes destiny — recovery is decided by where you stand in the queue.
CAPM: Capital Asset Pricing Model: expected return equals the risk-free rate plus beta times the equity risk premium. Prices only undiversifiable risk, on the principle that no one pays you to carry a risk you could remove for free.
Carry: What a position earns (or costs) just by existing, before any price move: coupons, rate differentials, funding costs. "Positive carry" pays you to wait; most blow-ups start as beautiful carry.
Carry and roll-down: What a bond position earns if the curve doesn't move: its yield (carry) plus the repricing gain as it ages into lower-yielding maturities (roll-down). The bond desk's baseline expected return — calculator on the yield curve page.
Central counterparty (CCP): The clearing house that steps between buyer and seller after a trade, becoming everyone's counterparty and demanding margin from both. Post-2008 plumbing that concentrates risk in order to manage it.
Cheapest to deliver (CTD): The bond a futures short would rationally deliver, once conversion factors are applied. A bond future tracks its CTD, and the right to switch is a real option held by the short.
Collateral: Assets pledged to secure an obligation, seized if you fail to pay. The plumbing of modern markets: derivatives, repo and lending all run on collateral moving around.
Compounding: Earning returns on past returns. Slow, then sudden: 7% a year doubles money in a decade and quadruples it in two. The most consequential arithmetic in finance — try the calculator on the equities page.
Contango / Backwardation: A futures curve above the spot price (contango) or below it (backwardation). Decides whether rolling a futures position costs or earns money — the silent driver of commodity fund returns.
Convenience yield: The benefit of holding a physical commodity rather than a claim on one. Measured as the gap between the futures price and full carry; rises when inventories are tight and vanishes when storage is full.
Conversion factor: The exchange's multiplier that makes different deliverable bonds roughly comparable against one futures contract. Deliberately imperfect, which is what creates a cheapest to deliver.
Convexity: Curvature in how a price responds to its driver: a position whose gains accelerate and losses decelerate has positive convexity. Bonds have it in yields; options are convexity for sale.
Correlation: How much two assets move together, from −1 (opposite) to +1 (lockstep). The foundation of diversification — and its betrayal, since correlations rise toward 1 in crises.
Corridor system: How a central bank enforces its policy rate: banks can always deposit at a floor rate and borrow at a ceiling rate, so the market rate is boxed between them.
Counterparty risk: The risk that whoever owes you performance fails before delivering. The reason clearing houses, collateral and the phrase "Lehman moment" exist.
Coupon: The periodic interest a bond pays, quoted as a percent of face value. Named after the paper coupons investors once physically clipped.
Covenant: A promise written into loan or bond documents restricting what the borrower may do — cap leverage, limit dividends, protect collateral. Lender protection that the last decade's "cov-lite" wave largely negotiated away; see leveraged loans.
Credit rating: An agency's letter-grade opinion of default risk, from AAA down to D. Investment grade ends at BBB−; below that is high yield. Ratings move markets — usually after markets have already moved.
Credit spread: The extra yield a borrower pays over the risk-free rate for the same maturity — the market's price for default risk, quoted in basis points.
Cross rate: The exchange rate between two currencies implied by their rates against a common third. A quoted cross that will not reconcile with its two legs is usually a stale quote, not an arbitrage.
Curve steepener / flattener: Duration-neutral trades on the yield curve's slope: a steepener wins when the long-short gap widens, a flattener when it narrows. How rates desks bet on shape without betting on level.
Custodian: The institution that holds securities on investors' behalf, keeping ownership records separate from the manager who trades them — the boring separation that turns out to matter enormously when a manager fails.

D

Day count convention: The rulebook for counting days between payments — 30/360, actual/365, actual/actual. Sounds like trivia until two systems disagree about a coupon; every market has its own habits.
Default: Failing to pay debt as promised. For companies it leads to restructuring or bankruptcy court; for sovereigns, to negotiation — nobody can liquidate a country.
Degree day: The building block of temperature derivatives: how far a day's average temperature fell below (heating degree day) or rose above (cooling degree day) a reference level, usually 18 °C. Accumulated over a season to settle weather contracts.
Degree day: The unit weather derivatives settle on: how far a day's average temperature fell below (heating) or rose above (cooling) a reference level, accumulated over a season.
Delta: How much an option's price moves per unit move of the underlying — also, loosely, its equivalent position ("100 calls, delta 0.5 ≈ 50 shares"). First of the Greeks.
Deposit beta: The share of a central-bank rate move that a bank passes through to savers. Betas of 0.2–0.5 on instant-access accounts are ordinary — which is why deposit rates rise slowly and fall quickly.
Deposit guarantee scheme: A state-backed guarantee on bank deposits up to a cap — per depositor, per institution, per scheme. Brands sharing one licence share one limit, and payout takes days to weeks.
Derivative: A contract whose value derives from something else — a stock, a rate, a currency, a default. Not inherently dangerous; leverage makes it so.
Discount factor: The price today of one unit of currency paid on a future date. The object every valuation actually uses; a yield is only a summary of a whole schedule of them.
Discount margin (DM): The floating-rate world's yield measure: the constant margin over the reference rate that reprices a floater or loan to its market price. Loans quote "S+350 at 99" — spread and price, DM implied.
Discount rate: The interest rate used to translate future cash into today's value. Small changes compound across decades — the reason long-duration assets swing hardest when rates move.
Diversification: Spreading risk across assets that don't fail together. The only free lunch in finance — with the fine print that in a crisis, correlations rise exactly when you need them low.
Dividend: The share of profits a company pays out to shareholders, typically quarterly or annually. The cash flow that dividend futures turn into a tradable asset.
Dividend yield: Annual dividends divided by share price. A valuation signal and an income measure — and a trap when a collapsing price, not a generous payout, is what made it high.
Drawdown: The fall from a portfolio's peak to its subsequent trough. The number investors actually feel: a 50% drawdown needs a 100% gain to recover.
Duration: A bond's price sensitivity to interest rates, expressed in years: duration 7 loses roughly 7% when yields rise one point. Long duration = big rate bet, in either direction.
DV01 / PV01: The money a position gains or loses per one basis point move in rates. The unit rates desks think in — notional says how big a trade sounds; DV01 says how big it is.

E

Earnings per share (EPS): A company's profit divided by its share count — the "E" in the P/E ratio, and the number quarterly earnings season revolves around.
Efficient frontier: The set of portfolios offering the most expected return per unit of risk — the upper edge of everything attainable. Portfolios below it waste risk; the concept behind every allocation debate. See diversification.
Efficient market hypothesis: The claim that prices already reflect available information, making consistent outperformance nearly impossible. Fiercely debated, approximately true — true enough to make index funds sensible, false enough to keep active managers employed.
ETF (exchange-traded fund): A fund that trades on an exchange like a single share, tracking an index or strategy. The wrapper that moved indexing from theory to trillions. See ETFs.
EV/EBITDA: Enterprise value divided by EBITDA. Compares businesses independently of how they are financed, which P/E cannot. Its blind spot is capital expenditure, so it flatters capital-hungry companies.
Ex-dividend date: The cutoff: buy the share on or after this date and the next dividend goes to the seller. Prices drop by roughly the dividend at the open — no free money at the boundary.
Exercise / Assignment: Using an option's right (exercise) — and being on the other side when someone does (assignment). Sellers of American options can be assigned any day the option is in the money.
Expected shortfall (ES): The average loss on the occasions when Value at Risk is breached — the question VaR refuses to answer. Sub-additive, so diversification can never appear to add risk, which is why bank capital rules moved to it from VaR.
Expense ratio: A fund's annual cost as a percent of assets. The single most reliable predictor of relative fund performance — negatively.
Exposure: How much you stand to gain or lose from a given risk — market exposure, currency exposure, credit exposure. Position size viewed through what can hurt you.

F

Face value / Par: The amount a bond repays at maturity, conventionally 100. Prices quote relative to it: "trading at 96.5" means below par.
Fair value: What a model or replication argument says something should cost. Markets deviate from it constantly — the deviations are either your opportunity or your model's error, and telling those apart is the job.
Fed funds rate: The US policy interest rate — the overnight rate the Federal Reserve steers, and the reference point global markets reprice against eight times a year.
Forward: A private agreement to trade something at a fixed price on a future date. The oldest derivative; a future is a forward standardised for an exchange. See FX forwards.
Forward Freight Agreement (FFA): A cash-settled forward on a shipping freight index. Hedges the cost of moving cargo by sea in a market where rates can move by a factor of ten in a year, because vessel supply takes years to respond.
Forward guidance: Communicating the intended path of policy so that expectations do the work of a rate change. Its cost is optionality: breaking guidance damages the credibility that made it effective.
Free float: The share of a company's stock actually available to trade — excluding founders, governments and locked-up insiders. Index weights use it; low float makes prices jumpy.
Full carry: The ceiling on a storable commodity's forward price: spot plus financing plus storage. Above it, anyone could buy, store and sell forward for a riskless profit.
Fundamental analysis: Valuing assets from their economics — earnings, cash flows, balance sheets, competitive position — rather than their price history. The counterpart of technical analysis.
Fungibility: Interchangeability: any one share of a class equals any other, one barrel of a grade equals another. What makes markets liquid — and what money launderers and sanctions both fight over.
Future: An exchange-traded, standardised forward with daily settlement of gains and losses through a clearing house. See equity futures.

G

G-spread: Bond yield minus the interpolated government yield at the same maturity — the simplest credit spread. Quick, universal, and blind to curve shape between the two points.
Gamma: How fast delta itself changes as the underlying moves — the Greek that measures how quickly your hedge goes stale. High gamma near expiry is what makes option desks sweat.
Gamma scalping: Running a delta-hedged long option and re-hedging as the underlying moves. Convexity pays on every move; theta charges for the wait. The breakeven daily move equals implied volatility divided by the square root of 365.
Gamma squeeze: A feedback loop in which call buying forces dealers to hedge by buying stock, lifting the price, raising their delta and forcing more buying. Strongest in small floats and short-dated options.
Greeks: The sensitivities of an option's price: delta (spot), gamma (delta's change), vega (volatility), theta (time), rho (rates). The dashboard of every options book.
Gross / Net return: Before and after costs — fees, taxes, transaction costs. The gap compounds: 2% of annual costs consumes roughly a third of a portfolio's final value over 30 years.

H

Haircut: The margin of safety subtracted from collateral's value when lending against it: a 2% haircut lends 98 against 100. Its inverse sets maximum leverage — the little number that runs the repo market.
Hawkish / Dovish: Central-bank body language: hawks lean toward higher rates to fight inflation, doves toward lower rates to support growth. Markets parse every speech for which bird is speaking.
Hedge: A position taken to offset an existing risk, accepting a cost or a capped upside in exchange. Insurance, built from instruments instead of policies.
High-water mark: The rule that a fund manager earns performance fees only above the fund's previous peak — no getting paid twice for recovering losses.
Hurdle rate: The minimum return before performance fees kick in, or the minimum a project must earn to be worth doing. Below the hurdle, activity is motion without progress.

I

I-spread: Bond yield minus the swap rate at the same maturity — the corporate desk's default spread quote, since credit hedges live in swap-land.
Illiquidity premium: The extra return demanded for money you can't get back quickly — the theoretical justification for private markets' fees and lock-ups, and a number easier to promise than to measure.
Implied volatility: The volatility number that makes an option's model price match its market price — the market's traded forecast of turbulence. What option traders actually buy and sell.
In / Out of the money: An option that would pay off if exercised now (in) versus one that wouldn't (out). Out-of-the-money options are pure time value — lottery tickets with quoted prices.
Index: A rule-based basket standing in for a market — S&P 500, DAX, Bloomberg Aggregate. The benchmark most portfolios are measured against and, via ETFs and futures, directly investable.
Inflation: The general rise of prices — the silent tax on cash and fixed coupons, the reason "real" (inflation-adjusted) returns are the only returns that matter over decades. See inflation-linked bonds.
Information ratio: Active return divided by tracking error — return per unit of benchmark-relative risk. Statistical proof of skill needs roughly IR × √years ≥ 2, which at IR 0.5 means sixteen years.
Intrinsic value / Time value: An option's price splits in two: what exercising now would yield (intrinsic), plus everything paid for the remaining possibilities (time value). Time value melts to zero at expiry — see theta.
IPO: Initial public offering — a private company selling shares to the public for the first time. Priced by negotiation, famous for first-day pops that transfer money from issuer to allocated buyers.
ISIN: The 12-character International Securities Identification Number that uniquely tags a security (DE000…, US037833…). The licence plate of every listed instrument.

J

J-curve: The shape of a private equity fund's cumulative cash flows: negative for years (capital calls, fees) before exits turn it positive. Nothing is wrong in year four — the J is the design. See private equity.
Junk bond: The blunt name for a high-yield bond — debt rated below investment grade. The label stuck in the 1980s; the market grew up anyway.

K

Kelly criterion: The formula for the bet size that maximises long-run growth: edge over odds. Full Kelly is a wild ride; practitioners run fractions of it. Its deepest lesson: beyond the optimal size, more risk reduces long-term returns.
Key information document: The standardised pre-sale disclosure for retail products, carrying a 1–7 risk indicator, performance scenarios and a cost table. The cost table is the only page that is a fact rather than a model.
Knock-in / Knock-out: Barrier features: an option that only starts existing when a level trades (knock-in), or dies instantly when one does (knock-out). The machinery inside barrier options, turbos and bonus certificates.

L

Leverage: Controlling more exposure than your capital — via borrowing, derivatives or structure. Multiplies gains, losses and, above all, the speed at which you can be forced out. See knock-out certificates and CFDs.
LIBOR → SOFR / €STR: The old survey-based interbank rates, retired after manipulation scandals, and the transaction-based overnight rates that replaced them as the reference for floating payments. See overnight index swaps.
Limit order / Market order: The two basic instructions: a limit order names your price and waits; a market order takes whatever the book offers now. Limit orders risk missing the trade; market orders risk the price — in thin markets, badly.
Liquidation: The forced closing of a position — by a margin call, a barrier, or a bankruptcy trustee. Markets are at their most violent when liquidations chain: forced sellers meet vanishing bids.
Liquidity: How much you can trade, how fast, without moving the price. Ample in calm markets, gone in stressed ones — liquidity is a fair-weather friend, and its disappearance is itself the crisis.
Long / Short: Positioned to profit from a rise (long) or a fall (short). Shorting borrows the asset, sells it, and hopes to buy it back cheaper — with theoretically unlimited downside.
Loss given default (LGD): The share of exposure lost when a borrower defaults — one minus the recovery rate. Expected loss is default probability times LGD times exposure, and recoveries fall exactly when defaults rise.

M

Initial vs. variation margin: The two flavours: initial margin is the deposit that opens a position; variation margin settles each day's gains and losses in cash. The 2022 UK pension crisis was a variation-margin story on a national scale.
Margin / Margin call: Collateral posted to support a leveraged position, and the demand for more when the position moves against you. Unmet margin calls end positions — and, at scale, firms.
Mark-to-market: Revaluing positions at current market prices, usually daily. The discipline that makes losses visible immediately — and the mechanism that turns falling prices into forced selling.
Market capitalisation: Share price times share count — what the market says the whole company is worth. The sorting variable behind "large cap" and "small cap", and the weighting scheme of most indices.
Market maker: A firm quoting both a buy and a sell price continuously, earning the spread and providing the liquidity everyone else consumes. In modern markets, mostly algorithms with risk limits.
Maturity: The date a contract ends or a bond repays. Everything on this site has one, except shares, perpetuals — and, in theory, AT1 bonds, which is part of their problem.
Mean reversion: The tendency of a variable to drift back toward its average — real for valuations, spreads and volatility over years; routinely imagined by traders over days. "It has to come back" is not a mechanism.
Momentum: The empirical tendency of recent winners to keep winning over months — one of the most persistent return patterns on record, and the strategy equivalent of driving by the rear-view mirror, profitably, until the road bends.
Mortality credit: The extra income an annuity can pay because those who die early subsidise those who live long. The reason no investment strategy replicates an annuity — the pooling, not the portfolio, produces it.
Myopic loss aversion: Checking a portfolio often enough that losses appear far more frequently than gains, prompting action that costs money. Looking less matches the observation interval to the horizon.

N

NAV (net asset value): A fund's assets minus liabilities, per share — what one share is "worth" as opposed to what it trades at. The gap between the two is the story in closed-end funds and ETF arbitrage.
Net basis: A deliverable bond's gross basis minus its carry. Near zero identifies a cheapest-to-deliver candidate; a positive net basis is the value of the short's delivery option.
Netting: Offsetting mutual obligations so only the difference changes hands. Legal netting agreements shrink trillions of gross derivative exposure into manageable net amounts — plumbing that decides who owes what when a counterparty fails.
Neutral rate (r*): The real policy rate that neither stimulates nor restrains the economy. Unobservable, heavily revised after the fact, and one of two such inputs in the Taylor rule.
Nominal vs. real: Before and after inflation. A 5% return with 4% inflation is a 1% real return; over decades, confusing the two is the costliest error in personal finance.
Notional: The reference amount a derivative's payments are calculated on — not the amount at risk. "A $100m swap" moves cash flows worth a fraction of that; headlines confusing notional with risk are a genre of their own.

O

OAS (option-adjusted spread): The spread left after a model removes the value of a bond's embedded options (callability, prepayment). For MBS and callables, the only spread that isn't partly the borrower's option mislabelled as yield.
Open interest: The number of derivative contracts currently outstanding — positions opened and not yet closed. Rising open interest means new risk being taken; volume without it is just positions changing hands.
Option: The right, without the obligation, to buy (call) or sell (put) at a fixed price by a set date. Asymmetry as a product: limited loss for the buyer, premium income and open-ended risk for the seller.
Order book: The live list of resting buy and sell orders at each price — the market's visible queue. Depth in the book is what "liquidity" looks like on a screen.
OTC (over the counter): Traded bilaterally between two parties rather than on an exchange — customised, private, and dependent on the counterparty's survival. Most of the world's derivatives, by notional, live here.
Output gap: The difference between actual and potential output. Like the neutral rate, it is estimated rather than measured, which is why policy rules built on it are benchmarks rather than recipes.
Overweight / Underweight: Holding more or less of something than the benchmark does — how professional portfolios express views. "Underweight France" is a sentence only relative to an index.

P

P/E ratio: Price divided by annual earnings per share — how many years of current profits you pay for the business. A valuation shorthand, most useful when compared across time or peers, most dangerous when used alone.
Par yield: The coupon that would price a bond at exactly 100. What the market usually quotes, and never what you can discount with — bootstrapping converts it into rates you can use.
Parametric settlement: Payment triggered by a measured index rather than a proven loss. Fast and undisputed, and the source of basis risk: the payout can arrive when you did not lose money, or fail to when you did.
Pari passu: Latin for "on equal footing": claims that rank equally in the repayment queue. Two words that have decided billion-dollar sovereign-debt lawsuits — see EM bonds.
Passive investing: Buying the whole market via index funds instead of picking winners — accepting the average return, which after costs beats most attempts to do better. The definitive market-structure shift of the past 30 years.
Payment for order flow: Payment received by a broker for routing customer orders to a particular market maker. Legal in some jurisdictions and banned in others; the argument is over whether the resulting execution is better or merely free.
Portfolio: The collection of everything you hold, viewed as one thing. The insight of modern finance: risk lives at the portfolio level, not in the individual holding.
Position: What you currently hold, with sign and size: long 200 shares, short 5 contracts. The unit of account of trading — P&L happens to positions, not opinions.
Premium: The price of an option, paid up front — or, more generally, any amount paid above a reference value ("trading at a premium to NAV").
Price discovery: The process by which trading turns scattered information into a public price. The social function markets perform while everyone in them is trying to do something else.
Primary / Secondary market: Where securities are born (issuer sells to investors — IPOs, bond auctions) versus where they live (investors trade with each other). Almost all daily volume is secondary.
Prime broker: The bank department that services hedge funds — custody, financing, securities lending, margin. Concentrated enough that one fund's failure (Archegos) can hit five banks at once.
Purchasing power: What a sum of money actually buys. The only measure of wealth that matters over long horizons, and the one no account statement reports.
Put option: The right to sell at a fixed price by a set date. Downside protection when bought; an insurance business when sold — see reverse convertibles for that trade in retail packaging.

Q

Quantitative easing (QE): Central banks buying bonds at scale to push down long-term rates once the policy rate hits zero — balance-sheet policy. Its reversal (QT) drains the reserves QE created; both move every curve in this atlas.
Quantitative tightening: Reversing QE, usually by letting bonds mature rather than selling them. Slower and less predictable in its market impact than the easing it undoes.
Quanto: A payoff computed in a foreign asset's units but paid in domestic currency at a fixed exchange rate. The currency risk leaves the payoff and reappears inside the price as a correlation term in the drift.
Quote currency: In a currency pair, the second currency — the one prices are expressed in. EUR/USD at 1.10 means 1 euro costs 1.10 dollars: euro is base, dollar is quote.

R

Rally / Correction: A sustained rise; a fall of roughly 10% from a peak. Market weather vocabulary — descriptive, not predictive.
Real yield: The yield of an inflation-protected bond — return above inflation, locked in. The nominal-minus-real gap is breakeven inflation; the real yield itself is the economy's true price of long-term money.
Rebalancing: Periodically restoring a portfolio's target weights — selling what grew, buying what shrank. Mechanical discipline that quietly enforces "buy low, sell high" without requiring a forecast.
Recovery rate: The share of a claim actually recovered after a default, historically ~40% for senior unsecured bonds. The other half of credit risk, alongside default probability. See CDS.
Rehypothecation: A broker reusing clients' collateral for its own borrowing. Efficient in calm times; in a failure, the same asset turns out to have several claimants — a core 2008 lesson relearned periodically, most recently on-chain.
Rights issue: A share offering made to existing holders in proportion to their holdings, at a discount. The rights are tradeable and valuable; letting them lapse is the one action that loses money with certainty.
Risk contribution: The share of a portfolio's total risk attributable to one holding, driven by its correlation with everything else rather than by its weight. Capital shares and risk shares routinely differ by a wide margin.
Risk premium: The extra expected return demanded for bearing a risk — equity over cash, corporate over government, illiquid over liquid. The engine of long-run investment returns; collecting it requires surviving the reason it exists.
Risk-free rate: The return on the safest available asset, in practice short government debt — see T-bills. The zero point every other return is measured from.
Rogue trading: Unauthorised positions concealed from an institution's own controls. Almost never a pricing failure and almost always a segregation-of-duties failure — the same person trading and confirming the trade.
Roll: Replacing an expiring contract with a later one to maintain a position — futures quarterly, options monthly. In commodities the roll's cost or gain (see contango) often outweighs the price view; see commodity futures.
Rule of 70: Divide 70 by an annual growth or inflation rate to get the years to double or halve. Accurate enough for any conversation and the fastest way to make compounding intuitive.

S

Securities lending: Renting out a security against overcollateralised, daily-margined collateral. Makes short selling and settlement work, and quietly earns index funds a few basis points. The historic failure mode is cash collateral reinvestment, never the stock loan.
Securitisation: Bundling loans — mortgages, auto loans, card receivables — into bonds backed by their payments, usually sliced into tranches. The machinery behind MBS, ABS, CLOs and CDOs.
Segregation (client assets): Holding client securities separately from a firm's own assets, so that a broker's failure does not put them in its estate. Structurally stronger than any compensation cap.
Segregation of duties: Separating who executes a trade from who confirms and settles it. The single control whose absence explains most rogue-trading losses, Barings included.
Seniority: Your place in the repayment queue — secured before senior, senior before subordinated, everyone before equity. Priced in every credit spread and tested in every default.
Sequence-of-returns risk: While saving, the order of returns is irrelevant; while withdrawing, it is decisive. A bad first decade forces selling into weakness and permanently shrinks the base later recoveries work on.
Settlement: The actual exchange of cash for assets after a trade, typically one or two business days later (T+1, T+2). Invisible until it fails.
Sharpe ratio: Return above the risk-free rate, divided by volatility — return per unit of risk taken. The standard score for comparing strategies; gameable by strategies that sell rare disasters.
Short interest: Shares sold short as a percentage of the free float. Can exceed 100% because a borrowed share, once sold, can be borrowed again by its new owner.
Short squeeze: A rising price forcing short sellers to buy back, pushing the price higher still — losses generating the very demand that deepens them. GameStop 2021 made it a household word; the mechanics are as old as shorting.
Skew: The pattern of implied volatility across strikes: in equities, downside protection costs more vol than upside — the market's permanent memory of 1987. Structured products are largely machines for harvesting it.
Slippage: The gap between the price you expected and the price you got — the cost of your own market impact plus everyone else's speed. Small per trade, decisive per strategy.
Specialness (repo): When a specific bond is in such borrowing demand that lenders of cash against it accept below-market interest. Watching which collateral "goes special" is watching where short sellers crowd.
Spot price: The price for delivery now, as opposed to forward and futures prices for delivery later. The anchor the entire curve hangs from — except in power, where nothing can be stored and the anchor drags.
Spread: Any difference between two prices or rates: bid–ask, credit spread, curve spread. Markets earn on spreads, hedge in spreads and think in spreads.
Stack-and-roll: Hedging a long-dated exposure with short-dated contracts rolled forward repeatedly. Covers the price risk and leaves roll risk and a cash-flow mismatch — the Metallgesellschaft failure in one phrase.
Stop-loss order: An instruction to sell once the price falls to a trigger — automated damage control. In gaps and flash crashes it becomes a market order into the void, filling far below the trigger.
Stress test: Asking "what happens to this portfolio in a specified disaster" — 2008 replayed, rates +300bp, a currency peg breaking. Regulation runs on them; so should personal leverage decisions.
Stress test: A scenario that states a set of market moves and asks what they cost, making no claim about probability. Survives regime changes that break every statistical risk measure.
Strike: The fixed price at which an option can be exercised. Together with expiry, the coordinates of every option contract — and half of this site's name.
Sukuk: A certificate of ownership in an income-producing asset, structured to comply with the Islamic prohibition on interest. Cash flows resemble a bond's; the legal claim does not, and the difference only appears in a default.
Summary risk indicator: The 1–7 scale on a key information document, combining market and credit risk. A calibrated volatility bucket — comparable across products and blind to the shape of the tail.
Swap: An exchange of payment streams — fixed for floating, one currency for another, total return for financing. The workhorse OTC derivative. See interest rate swaps.
Systematic vs. idiosyncratic risk: Market-wide risk (undiversifiable — the floor) versus single-name risk (diversifies away across ~20-30 holdings). Only bearing the first is reliably paid.
Systemic risk: The risk that one failure cascades through the system's connections — counterparties, collateral chains, fire sales — until the system itself is the casualty. What regulation since 2008 is mostly about.

T

Taylor rule: A benchmark policy rate: neutral real rate plus inflation, leaning against the inflation gap and the output gap. A reference point, not a recipe — two of its inputs cannot be observed.
Technical analysis: Reading price charts and patterns to forecast prices. Its evidence base is thin and its vocabulary is everywhere — worth knowing as language even if you never trade a "head and shoulders".
Term premium: The extra yield for holding long bonds beyond what expected short rates explain — compensation for duration uncertainty. Invisible, model-estimated, and the subject of every "why are long yields rising" debate.
TERP: Theoretical ex-rights price: the weighted average of old shares at the market price and new shares at the subscription price. Explains why a share price drops on the ex-rights date without any value being lost.
TERP: Theoretical ex-rights price: the weighted average of old shares at the market price and new shares at the subscription price. Explains why a share drops on the ex-rights date with no value lost.
Theta: An option's daily loss of value from time passing, all else equal. The rent option buyers pay and sellers collect.
Tick: The smallest price increment an instrument can move on its exchange. Market microstructure's atom.
Tokenisation: Recording ownership of an asset as a blockchain token. The asset's risks are unchanged; what changes is settlement speed and the addition of smart-contract, oracle and bridge risk.
Total expense ratio (TER): A fund's ongoing charges as an annual percentage of assets, accrued daily out of NAV. Excludes the fund's own trading costs, entry and exit spreads, and platform fees — so it is a floor, not a total.
Total return: Price change plus all income — dividends, coupons — ideally reinvested. The only fair basis for comparing assets; price-only charts quietly understate equity history by percentage points a year.
Tracking difference: The realised gap between a fund's return and its index over a period — a level, not a volatility. The only cost measure that captures charges, taxes, trading and lending revenue all at once.
Tracking error: How far a fund's returns wander from its benchmark's, measured as a volatility. For index funds a defect; for active funds, the license fee for the chance to differ.
Transmission lag: The delay between a policy change and its effect. Asset prices move on the announcement; the real economy responds over roughly twelve to eighteen months.

U

Underlying: The asset a derivative references — the stock under the option, the index under the future, the borrower under the CDS. Every derivative on this site is a claim written on some underlying.
Unwind: Closing out a position or strategy, especially a large or crowded one. "The unwind" is what turns a crowded trade's exit into everyone's problem — see the carry trade.

V

Value at Risk (VaR): A statistical loss threshold: "1-day 99% VaR of $10m" means losses should exceed $10m only one day in a hundred. Ubiquitous, useful, and silent about how bad that hundredth day gets — its blind spot has a crisis named after it.
Value at Risk (VaR): The loss exceeded only (1 − confidence) of the time over a stated horizon. A threshold, not a worst case: it says nothing about how bad the breaches are, and it is not sub-additive.
Vega: An option's sensitivity to implied volatility: how much its price changes per volatility point. The Greek that makes options a bet on turbulence, not just direction.
Viability event: A contractual trigger in bank capital instruments allowing write-down or conversion when an authority judges the issuer non-viable — including on extraordinary public support. What wrote $17bn of AT1 to zero in 2023.
Volatility: The size of an asset's price fluctuations, annualised as a percentage. Realised volatility is measured from history; implied is traded in options. Finance's stand-in for risk — imperfect, but priceable. See variance swaps.
Volatility risk premium: The persistent gap between implied volatility (what option buyers pay) and subsequently realised volatility (what markets deliver). Harvesting it is the insurance business of markets — steady premiums, occasional catastrophe. See the volatility page.
Volume: How much traded in a period — shares, contracts, notional. Price moves on high volume carry conviction; moves on none are rumours with a chart.

W

WACC: Weighted average cost of capital: the blend of equity and after-tax debt costs a project must beat. Earning exactly the WACC creates no value — it pays the financiers and nothing more.
Window dressing: Tidying a portfolio or balance sheet just before a reporting date — banks shrinking repo at quarter-end, funds buying the quarter's winners. Visible as a sawtooth in the data; see the cross-currency basis.
Writer (of an option): The seller — the party who collects the premium and owes the payoff. Writing options is running an insurance book: steady income, occasional catastrophe, sizing is everything.

Y

Yield: An investment's income return as a percent of its price — bond yields, dividend yields, rental yields. The other half of this site's name.
Yield curve: Yields plotted across maturities, from overnight to 30 years. Normally upward-sloping; inversion — short rates above long — is the market's classic recession signal.
Yield to maturity (YTM): The single discount rate at which a bond's future cash flows equal its price today — the yield you lock in by holding to maturity, if coupons reinvest at the same rate. Try the solver on the fixed income page.

Z

Zero-coupon bond: A bond with no coupons: buy at a discount, receive face value at maturity — the purest expression of the time value of money, and maximum duration for its maturity. See zero-coupon bonds.
Zero lower bound: The floor near 0% below which policy rates barely work (cash yields zero by definition). The 2010s were spent pinned to it — the era that produced QE, negative Bund yields and much of this atlas's stranger pricing history.
Z-spread: The constant spread that, added to every point of the reference curve, reprices a bond exactly — the cash-flow-faithful credit spread, workhorse of relative value. Calculator on the spread measures page.