The vocabulary of markets

Ask

The lowest price a seller currently accepts.

Backwardation

Futures curve where later contracts trade below earlier ones.

Bid

The highest price a buyer currently offers.

Contango

Futures curve where later contracts trade above earlier ones.

Custody

Safekeeping of assets by a third party. Not provided by EvercoreFX.

Delta

Sensitivity of an option price to a move in the underlying.

Drawdown

Decline from a peak in equity, measured in percent.

Leverage

Exposure larger than the capital committed; amplifies gains and losses.

Limit order

An order to trade only at a set price or better.

Liquidity

How much can trade near the current price without moving it.

Margin

Collateral deposited to hold a leveraged position.

Notional

Full value of a position: quantity times price.

Pip

The fourth decimal in most currency quotes.

Settlement

The exchange of cash and instrument after a trade.

Slippage

Difference between expected and actual fill price.

Spread

Ask minus bid; a cost paid on every round trip.

Stop order

An order that becomes a market order once a trigger price trades.

Theta

Option value lost per day from time decay.

Tracking difference

Fund return minus index return over a period.

Volatility

The dispersion of returns, often annualised.

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