The Words of Your First WeekStart here

The vocabulary a trading floor uses without explaining it, grouped by the situation you will first hear each word in rather than by alphabet.

Why grouped this way

• An alphabetical list is useful once you know what you are looking for. In week one you do not — you hear a word, in a situation, and have three seconds to decide whether it matters.
• So this page is grouped by situation: prices, doing the trade, size and risk, what happens afterwards, money, and the small set of words that mean something different here than in ordinary English.
• The single most useful habit: write down the words you did not understand, and ask about them in a batch at the end of the day rather than in the middle of somebody's morning. Nobody minds the question; the timing is the whole etiquette.

1. Prices and quotes

• Bid — the price at which someone will buy from you. Offer (or ask) — the price at which they will sell to you. You almost always trade against somebody else's side, which is why the two are never the same number.
• Mid — halfway between them. Useful for valuing, not available for trading. A great deal of confusion in a first week comes from someone quoting a mid and someone else hearing a tradeable price.
• Spread — the distance between bid and offer, and one of the real costs of a trade even though it never appears on a bill. What it costs is set out in what liquidity costs.
• Tight / wide — a small or large spread. “It has gone wide” usually means something has happened, not that anybody changed their mind about value.
• Two-way price — a bid and an offer quoted together, without the quoter knowing which side you want. That ignorance is the point: it is what makes the price honest.
• In competition (“in comp”) — you are asking several dealers at once, and saying so. Not saying so, and being found out, is a reputational matter rather than a technical one.
• RFQ — request for quote: you ask a named dealer for a price on a specific size, rather than taking whatever is showing on a screen.
• Size — how much. “What size?” is not a challenge, it is the missing half of every price: a quote without a size attached is not a quote.
• Print — a trade that actually happened, at a price everybody can see. A print settles arguments that quotes cannot.
• Level — where something is trading, loosely. “Where's the level?” means roughly what price, not exactly what price.
• Axe — a position the desk actually wants to do, usually because it already holds the other side. A dealer who is axed to sell will show you a better offer than one who is not, and there is nothing improper about it.
• Colour — context rather than data: who has been buying, what people are worried about, how the day feels. Asking for colour is asking for the story around the numbers.

2. Doing the trade

• Hit — to sell into someone's bid. Lift — to buy from their offer. Two verbs that carry the direction, so nobody has to say it twice.
• Mine / yours — the shortest possible way to say “I buy” and “I sell”. Old-fashioned, still used, and unambiguous once you know it.
• Done — agreed. This word is the trade. Everything after it is administration, and it is binding well before any paperwork exists.
• Working an order — executing gradually rather than all at once, to avoid moving the price against yourself.
• Fill — the execution you actually got. Partial — you got some of it. Nothing done — you got none.
• At best / market order — take what is available now. Limit — only at this price or better. The trade-off between them is the whole of market versus limit.
• Block — a single large trade agreed away from the continuous market, precisely because putting it into the continuous market would move it.
• Cross — matching a buyer and a seller who are both your clients, rather than going to the market.
• Give-up — the trade is executed by one broker and settled by another, on the client's instruction.

3. Size, position and risk

• Long / short — you benefit if it goes up, or if it goes down. Both words are also used about things other than direction: long volatility, long the curve, short liquidity.
• Flat — no position. The word every desk wants to be able to say at the end of a difficult day.
• Offside — the position is currently losing. Says nothing about whether it was a good idea.
• Notional — the size the contract references, which is very often not the amount at risk. A billion of interest rate swap and a billion of bonds are not remotely the same exposure, which is exactly why the next word exists.
• DV01 (also PV01, BPV) — what the position gains or loses if the relevant rate moves by one basis point. The rates desk's unit of size. How to work it out in your head.
• Basis point — one hundredth of a percentage point. Used because “rates rose half a percent” is ambiguous — half a percent of what — and “fifty basis points” is not.
• Delta, gamma, vega, theta — how an option's value responds to the underlying, to that response itself, to volatility and to time. Volatility and the strategy builder, where you can watch each one move.
• Limit — the maximum risk a desk is permitted to hold, set by risk, not by the desk. Breaching one is a process event even if the position makes money.
• Haircut — the discount applied to collateral so the lender is still covered if it falls in value. Margin and collateral.
• Margin call — the demand for more collateral, now. The word behind most of the case studies on this site: being right is not a defence against one.

4. What happens after “done”

• Trade date and value date — when it was agreed, and when the money and the asset actually change hands. They are different, and almost every operational problem lives in the gap.
• T+1, T+2 — settlement one or two business days after the trade. The convention varies by market and has been shortening. Clearing and settlement.
• Confirm — the document that says what both sides think they agreed. Reading one carefully is more useful in a first week than almost anything else you could do.
• Break — the two sides' records disagree. Fail — the delivery did not happen on the value date. Neither is rare, and both are somebody's whole morning.
• Novation — one counterparty is replaced by another with everyone's consent, most commonly when a trade is moved to a clearing house.
• Unwind — closing a position by reversing it rather than letting it run to maturity.
• Roll — moving a position from an expiring contract into the next one. In futures and FX this is routine, has a cost, and that cost is often the trade.
• Expiry, exercise, assignment — the option ends; the holder uses it; the writer is the one who has to deliver. If you are assigned, you had no choice in the matter.
• Corporate action — a dividend, split, merger or rights issue that changes the instrument itself. Corporate actions.

5. Money words

• P&L — profit and loss. Realised is what has been closed out; unrealised is what the position is currently worth. Both are real; only one is money.
• Mark — the price at which a position is valued today. Mark-to-market — doing it against observable prices. Where there are no observable prices, the mark is somebody's estimate, and saying so out loud is a mark of seniority rather than weakness.
• Carry — what the position earns or costs simply for being held, before it moves at all. A trade can be right and still lose to negative carry.
• Funding — what it costs to finance the position. Borrow — what it costs to borrow a security in order to short it, and it is not constant.
• Basis — the difference between two prices that ought to be nearly the same: cash against future, one currency's funding against another's. Whole desks exist inside these gaps. Basis swap.
• Roll-down — the gain a bond position makes purely by getting closer to maturity along an upward-sloping curve, with nothing moving. The yield curve.
• Slippage — the difference between the price you expected and the price you got.
• Running — as in “what are we running?”, meaning the current position, not the profit.

6. Words that mean something else in here

• Security — not safety. A tradeable financial instrument, which may be extremely unsafe.
• Protection — in credit, the CDS position that pays if the issuer defaults. Buying protection is taking a negative view, not being cautious. CDS.
• Exposure — how much you would lose if a particular thing moved, not how much you have invested.
• Cover — usually to close a short. Occasionally to hedge. Ask which is meant; both are used.
• Premium — three different things depending on the room: the price of an option, the amount above par a bond trades at, and the extra return expected for taking a risk. Context decides, and getting it wrong is a classic first-week moment.
• Discount — likewise: below par, or the act of converting a future cash flow into a present value. IRR and NPV.
• Tenor — how long the contract runs. Not to be confused with duration, which is a sensitivity, not a length of time — although it is measured in years, which is precisely why people confuse them.
• Physical — actual delivery of the actual thing. In commodities this is not a figure of speech and somebody has to arrange a warehouse.
• Paper — securities, generically. “There is paper for sale” means someone is selling, not that anything is printed.
• Natural — a genuine end buyer or seller, as opposed to an intermediary. Desks care a great deal about the difference.

Three habits worth more than the vocabulary

• Repeat back what you were asked before doing it. Almost every expensive misunderstanding on a floor is a direction, a size or a date that was heard wrong and never confirmed.
• Say “I don't know” quickly and once. The cost of the words is a few seconds; the cost of guessing is that every other thing you have said becomes suspect.
• Learn what a trade looks like after it is done. Sit with operations for an afternoon and read a real confirmation. You will understand the instrument better than most people who quote prices on it, because you will have seen what it obliges.