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Last active March 24, 2016 09:44
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Lexicon - Finance
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lexicon.md

  • Equity: A stock or any other security representing an ownership interest.

  • Futures Contract: a type of derivative instrument, or financial contract, in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price.

  • Fixed-income Security: An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance.

  • Security: a tradable financial asset. It is commonly used to mean any form of financial instrument, but the legal definition of a "security" varies by legal and regulatory jurisdiction.

  • Derivatives: A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

  • Margin:

    • Borrowed money that is used to purchase securities. This practice is referred to as "buying on margin"
    • The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account

  • Margin Account: A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock.

  • Maintenance Margin: Maintenance margin is the minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account. Keep in mind that this level is a minimum, and many brokerages have higher maintenance requirements of 30-40%.

  • Margin Call: A broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur when your account value depresses to a value calculated by the broker's particular formula

  • VWAP: Volume Weighted Average Price. A trading benchmark used especially in pension plans. VWAP is calculated by adding up the dollars traded for every transaction (price multiplied by number of shares traded) and then dividing by the total shares traded for the day. If the price is above VWAP, it is a good intra-day price to sell. If the price is below VWAP, it is a good intra-day price to buy.

  • TWAP: Time-Weighted Average Price is defined as the average price of a security over the course of a specified period of time. The TWAP is traditionally calculated by first averaging the open, high, low, and close prices for each bar and then calculating the average of those averages as time progresses. High-volume traders use TWAP to execute their orders over a specific time so they trade to keep the price close to that which reflects the true market price

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