The Butterfly spread is a direction neutral option strategy. The Long Butterfly is a combination of a Bull Call Spread and a Bear Call Spread. It is a limited profit, limited risk strategy. There are 3 strike prices involved in a Long Butterfly, and it. continued

A theoretical barrier which separates different divisions of a financial institution which acts to prevent conflicts of interest. For example, a hedge fund may route some of it’s algo-based trading strategies through an investment bank’s or brokerage’. continued

A Christmas Tree is an options trading strategy which is generally constructed by purchasing one call option and selling two other call options at different (higher) strike prices. When drawn structurally, the strike price of the long option is locate. continued

A Collar is an options strategy which is constructed by holding shares of the underlying while buying protective puts and selling call options. The puts and the calls are both Out the Money options with the same expiry month and must be equal in number. continued

Also referred to as Colo. A common practice in the trading world which involves the hosting and housing of an organisation’s server(s) in a data centre either close to, or in some cases, within, a trading venue. Colocated servers are often hosted wi. continued

Complex Event Processing is a technology discipline which involves the capture and analysis of multiple discrete events with a view to identifying a overarching pattern which unites those events. One example of a complex event, given by Professor Davi. continued

A Covered Call occurs when an investor holds stock, and sells a call option in order to collect premium. Covered calls come in two varieties: an In the Money Covered Call, and an Out the Money Covered Call. With an In the Money Covered Call, the hold. continued

Crossing the spread occurs when a trader (or algorithm) is forced to buy at the offer price or sell at the bid, instead of letting, for instance, the buy limit order rest at the bid and letting the market cross. continued

Direct Market Access, or DMA, refers to the method used by buy-side firms to access liquidity without having to go through a brokerage’s execution desk. continued

Dark pools, defined in contrast to lit trading venues where trading intentions and activity are visible, provide access to non-displayed liquidity. A dark pool is an OTC (over-the-counter) venue for reporting purposes, which has the practical value t. continued

A trader who opens and closes positions numerous times within the same day. This short-term trading strategy is fine if there is sufficient movement in market price during trading hours. Due to the nature of this trading strategy, Day Traders must also. continued

Day Trading is the trading strategy adopted by a Day Trader. continued

The Debt-to-Equity ratio is a measure of leverage, equal to total debt divided by shareholders’ equity. It indicates the relative proportion of debt to equity, and how they are used to finance the company’s assets. The two figures are generally sourced. continued

Delta is the ratio of the change in the price of the underlying asset to the change in the price of a derivative. For example, a call option with a delta of 0.7 means that for every 1 the underlying stock increases, the call option will increase. continued

The Diagonal Call Spread is one flavour of diagonal spread. The diagonal spread is very much like the calendar spread, where near month options are sold while far month options are bought, taking advantage of the rapid time decay in options that are so. continued

The Diagonal Put Spread is one flavour of diagonal spread. The diagonal spread is very much like the calendar spread, where near month options are sold while far month options are bought, taking advantage of the rapid time decay in options that are soo. continued

A Dividend Swap is a financial instrument where two counterparties contract to exchange a set of future cash flows (legs) at set dates in the future. One counterparty agrees to pay the other the future dividend flow on a stock or basket of stocks in. continued

Double Top is a technical analysis term used to describe the rise of a stock price, a subsequent drop, followed by another rise to the same level as the original rise, and finally another drop — a bearish trend reversal. The double top looks like the l. continued

Drawdown is the peak-to-trough decline during a specific record period of an investment or investment strategy. A drawdown is usually quoted as the percentage between the peak and the trough. Drawdowns help determine an investment’s financial risk. A. continued

Elliott Wave Theory is a technical analysis principle named after Ralph Nelson Elliott, who concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves. Based on rhythms found in nature. continued

An Equity Swap is a financial instrument where two counterparties contract to exchange a set of future cash flows (legs) at set dates in the future. One leg (the floating leg) is pegged to an interest rate (e.g. LIBOR, EURIBOR). The other leg (the. continued

The European Economic Area (EEA) comprises the EU states plus the remaining members of the old European Free Trade Area (EFTA; Iceland, Liechtenstein and Norway) that decided against leaving that organisation to join the EU. The significance of this is. continued

A trading strategy which seeks to exploit pricing inefficiencies leading up to, or as a result of, a known corporate event. Examples of such events include mergers, bad news, poor performance figures, and recapitalisation. This strategy is often emplo. continued

An Exponential Moving Average (EMA), mathematically speaking an exponentially weighted moving average, is a moving average which has multiplying factors to give different weights to different data points. In technical analysis terms, an Exponential Mov. continued

A tool used by organisations to grant access to specific pieces of information, but extends this access to approved users only. An extranet works much like a company’s intranet but, in most cases, is not accessible by the general public. Only selected. continued

FAST (Fix Adapted for STreaming) is an extension to the FIX protocol, and is specifically designed to standardise and optimise the transmission of price data over rapidly congested networks. Ever increasing volumes of market data were being pumped dow. continued

The Financial Information eXchange (FIX) Protocol is a series of messaging specifications for the electronic communication of trade-related messages. FIX has been developed through the collaboration of banks, broker-dealers, exchanges, industry util. continued

FIXatdl (the FIX Algorithmic Trading Definition Language) is a fully approved FIX standard which allows firms receiving algorithmic orders to set out how their orders should be expressed. The firm provides XML files specifying parameters and validatio. continued

Also known as High Frequency Trading. Flash trading is a strategy which involves the execution of millisecond long orders, based on information that has not yet been made public. Using advanced execution technology, traders are capable of open and cl. continued

Forex, FX. A market in which currency is traded. The FX market includes all world currencies, and is the largest in the world with some $3.2 trillion traded on average, every day. It is also the most liquid market in the world. FX is traded OTC, as t. continued

Front-running generally refers to the illegal practice of a broker placing and executing orders on a stock on its own account with advance knowledge of orders pending from its clients which would affect the price of the stock. If the broker buys first. continued

Fundamental Analysis is a method of calculating an asset’s value by attempting to measure its intrinsic value, examining economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affec. continued

The Gamma of an option indicates how the Delta of an option will change relative to a 1 point move in the underlying asset. The Gamma shows the option delta’s sensitivity to market price changes. It is the second derivative of the asset price, the delta. continued

A trading strategy that creates a position or portfolio of positions sometimes spanning multiple asset classes based on interpretations of broad political, economic and social factors. continued

As opposed to the low or zero human interaction involved in black box trading, grey boxes employ algorithms which support or require human interaction, and allow the user to set parameters, as well as monitor and change them. continued

The pooling of multiple resources, in this case, several computers, to solve a single problem. This can take the form of several workstations in a single office, to larger-scale projects over a VPN, or an entire network spanning organisations and coun. continued

The Long Guts is a direction-neutral options strategy. The Long Guts involves the purchase of an In-the-Money call option and an In-the-Money put option of the same underlying stock and expiry month. The Long Guts has unlimited profit potential, and a. continued

The Hammer formation is a technical analysis chart pattern. The Hammer is a bullish formation. It represents the opposite of the Hanging Man. It is called a Hammer because the market is effectively hammering out a bottom. Three criteria establish a Ha. continued

The Hanging Man formation is a technical analysis chart pattern. The Hanging Man is a bearish formation. It represents the opposite of the Hammer formation. It is called a Hanging Man because it looks like a hanging man with dangling legs. Three crite. continued

Head and Shoulders is a technical analysis term used to describe a chart formation in which a stock’s price: 1. Rises to a peak and subsequently drops 2. Rises again above the previous peak, and drops again 3. Rises again, but not as high as the seco. continued

A hedge fund is a private investment fund open primarily only to institutional, professional and high net worth investors. Hedge funds enjoy significantly less regulation than traditional investment funds permitting them to undertake a much wider range. continued

A Calendar or Horizontal spread involves buying an option (or future) at a strike price for one expiry, and the sale of another option for the same underlying and at the same strike price, for a different expiry. A Bull Calendar Spread is composed of. continued

Typically, a large volume, single order which has been broken down into smaller lots, often through the use of an algorithm or automated trading program. By showing only a small part of the total order, the tip of the iceberg, any effects on the pri. continued

Designed to address the balance between alpha capture and market impact. Scheduling uses some historic data, but is more reactive to order book volume than VWAP because there is no defined end time. This means inventory does not have to be managed over. continued

An Inter-Dealer Broker, or IDB, acts as an intermediary between banks or brokerages, facilitating large transactions whilst operating on very tight spreads. continued

The Inverted Hammer formation is a technical analysis chart pattern. The Inverted Hammer is a bullish formation. It represents the opposite of the Shooting Star formation. Three criteria establish an Inverted Hammer formation: A real body that is at. continued

The Iron Butterfly is an options and futures strategy, which is a combination of a Bull Put Spread and a Bear Call Spread. The Iron Butterfly spread is a limited risk, limited profit trading strategy. It is structured for a larger probability of earn. continued

The Iron Condor is an option strategy which is designed to have a large probability of earning a small limited profit when the underlying stock is believed to have low volatility. The Iron Condor strategy can also be visualized as a combination of a B. continued

A term which refers to the length of time a message takes to traverse a system. In most cases, latency referes to the amount of time a packet of data will spend moving from it’s point of origin to it’s destination. Up to 70% of daily trade volume is n. continued

Legging risk is the risk of not being able to fulfil a particular leg of a spread or strategy at the price required. This occurs when the trader is not trading an exchange traded strategy, but has determined a spread price composed of legs which are i. continued

A company employs leverage when it takes a loan, which is then invested, for instance in fixed assets, in order to gain a return from those assets greater than the cost of the borrowing. One key measure of a company’s leverage is its debt to equity rat. continued

A Limit order is used to buy or sell a financial instrument on an exchange at a set price or better. The Limit order may also have some expiration parameters attached, such as Day, Good til Date (a specified date), Good til Cancel etc. On many exchan. continued

The extent to which an asset can be bought or sold on the market without affecting that asset’s price. Liquidity is mostly characterised by a high level of trading activity. An asset which can easily be bought or sold would be referred to as having hig. continued

The Long Call Ladder is a limited profit, unlimited risk strategy in options trading. The Long Call Ladder is used when the trader believes that the underlying will not experience much volatility in the near term. The Long Call Ladder is constructed as. continued

The Long Put Ladder is a limited profit, unlimited risk strategy in options trading. The Long Put Ladder is used when the trader believes that the underlying will not experience much volatility in the near term. The Long Call Ladder is constructed as f. continued

Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator in technical analysis. MACD shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (. continued

A Market order is used to buy or sell a financial instrument on an exchange at the prevailing market price up to the required volume, often working down the order book levels to find volume. It is designed to guarantee execution at the expense of price. continued

A Market Maker refers to a person or company which takes on the risk and responsibility of providing liquidity to the market by offering two-way (bid and ask) prices. Individual market makers will frequently trade hundreds or sometimes thousands of tim. continued

EU Directive to establish and regulate the single market in investment services and activities in the EU. The Directive establishes the conditions under which an investment firm licensed in any EU member state can do business in any other member state. continued

Moneyness is the term which indicates whether an option strike price will have exercise value at expiry. If the current price of an option’s underlying asset is greater than a call option’s strike price, the call option has a positive intrinsic value. continued

Moving Average is a general term for a set of calculations in technical analysis used to create an average value of a set of price data points over a given period. The term oftens refers specifically to a Simple Moving Average calculation; other movin. continued

Option spreads are a subset of options strategies, where the investor buys and sells an equal number of options on the same underlying, but at differing strikes and/or expirations. Options spreads can be further categorised into Vertical Spreads, Hori. continued

Options spreads are the basic building blocks of many options trading strategies. A spread position is entered by buying and selling equal number of options of the same class on the same underlying security but with different strike prices or expirati. continued

A Percentage of Volume algorithm is a participation algorithm designed to target a defined fraction of the overall volume on a stock for the period in question. As its intention is to keep its trading activity in line with total volume, its market impa. continued

QR Codes offer you a quick and easy way to jump from our magazine content to rich online media using your Blackberry, iPhone, or pretty much any other smartphone. QR Codes aren’t new. In fact, they’ve been around since their invention in 1994 by Japan. continued

Complex mathematical and statistical modelling, measurement and research. Quantitative Analysts, or Quants, seek to replicate real-life situations by assigning numerical values to a number of variables, but in a mathematical formula which results in. continued

Commonly referred to as Reg NMS, Regulation NMS (National Market System) is a set of rules introduced by the SEC (U.S. Securities Exchange Commission) in 2005. The main aim of Reg NMS is to improve exchanges in the U.S. by ensuring best-execution prac. continued

Relative Strength Index (RSI) is a momentum indicator in technical analysis. RSI compares the size of recent gains to recent losses with a view to determining overbought and oversold conditions of an asset. The RSI calculation yields a result ranging f. continued

Rho is the rate of change of the option value with respect to the risk free interest rate. Generally option value is least sensitive to changes in the interest rates. Rho is typically expressed as the amount of money, per share, that the value of the. continued

Satisficing means to obtain an outcome that is good enough, by settling for less than the optimal solution in order to reach a satisfactory solution as quickly and cheaply as possible. Satisficing action can be contrasted with maximising action, which. continued

Scalping is a trading practice whereby, like a market maker, the trader seeks to generate many small individual profits by buying at the bid and selling at the offer or ‘Ask’. The practice of Scalping crosses significantly with the role of a Market Ma. continued

The Shooting Star formation is a technical analysis chart pattern. The Shooting Star is a bearish formation. It represents the opposite of the Inverted Hammer formation. It occurs in an upper trend which indicates that the market opens at the lows of. continued

Smart Order Routing or SOR is a way for brokers to maximise the competitive potential of regulation and achieve best execution for their clients. Early Smart Order Routing algorithms compared prices for the target asset on competing markets and sent th. continued

Statistical Arbitrage, commonly referred to as StatArb, is a profit situation which arises from a pricing difference between two securities. StatArb differs slightly from Arbitrage, in that the trading strategy cannot guarantee the delivery of pro. continued

A Stop order or Stop Loss order is an order to buy or sell a financial instrument when its price passes a particular level, thus making them more likely to hit a desired entry or exit price. A Stop Loss order is used to limit the investor’s loss or lo. continued

A straddle is a derivative trading strategy which enables an investor to take a position on the volatility of an underlying asset. In a long straddle, the investor is buying a call option and a put option at the same strike price and expiry. As long as. continued

The Strangle, also known as the Long Strangle, is a neutral strategy in options trading which involves the purchase of a slightly Out-the-Money put and a slightly Out-the-Money call of the same underlying stock and expiry month. The Strangle has unli. continued

The Strip is a more bearish version of the common Straddle. It involves buying a number of At-the-Money calls and twice the number of puts of the same underlying stock, strike price and expiry month. Buy 1 ATM Call Buy 2 ATM Puts Strips have unlim. continued

The Support level is the price level below which a stock has had difficulty falling over a period of time. It is considered as the level where many buyers tend to enter the stock. If the price of a stock falls towards a support level it is a test for t. continued

Executes an order evenly over a user defined time period. Like VWAP, this strategy manages the inventory of the order through to the end of the user defined period. Unlike VWAP, scheduling is done on an even basis during the chosen period, rather than. continued

Technical Analysis is a method of evaluating and predicting financial instrument price movements by analysing statistics generated by market activity, such as past prices and volume. Technical analysts believe that the historical performance of stocks. continued

Theta is a parameter in option valuation to measure responsiveness of an option to change in time, specifically how it changes as the option approaches its expiration or maturity date. Theta is also often called time decay. Theta is represented by Gre. continued

In computing, Throughput is the maximum amount of work that a device can perform within a given period of time. In the context of communications, Throughput is the maximum number of succesfully transferred messages over a network within a given period. continued

An order which has not been executed at the best possible price, according to prices quoted on any trading venue. Reg NMS and MiFID aim to ensure that institutional and retail investors receive the bst possible price for any trade by comparing quotes. continued

A method of utilising the public telecommunications infrastructure to provide, for example, an organisation’s employees or remote offices secure access to it’s own network. VPN’s are often a cheaper alternative to owning (and maintaining) or leasing l. continued

A Virtual Private Server, or VPS, provides the features of a dedicated server on a machine which is shared with other web hosting users. Each VPS is totally independant of others, and whilst occupying the same piece of hardware as other users, VPS cli. continued

Executes an order over a defined time interval with scheduling based on historic volume curves (usually with some, but limited, dynamic reaction). VWAP strategies are designed to trade to the end of a set period, so they have to manage the inventory of. continued

Vega, represented by Greek symbol (nu), is used to capture the responsiveness of option value to changes in the volatility of the underlying. Option Vega grows as the option comes from being Out-the-Money closer to being At-the-Money, and then it. continued

Volatility is a measure of the statistical dispersion of returns for a given asset. Volatility refers to the amount of uncertainty about the scale of changes in the price. A higher volatility means that the price can be spread out over a larger range o. continued

Weighted Moving Average is a moving average which has multiplying factors to give different weights to different data points. In technical analysis terms, a Weighted Moving Average (WMA) specifically means assigning arithmetically decreasing weights t. continued