Trading Glossary: Stocks, Options, Futures & Forex
Trading words explained plainly, with formulas and the calculators that use them.
158 terms
A
Adjusted cost base (Canada)
Also: ACB
In Canada, the average cost of all identical shares held, including buying costs, adjusted for events such as return of capital; each sale’s gain is measured from it.
American and European exercise
Also: exercise style
An American-style option can be exercised on any day until expiry; a European-style option only at expiry. Many single-stock options are American, and many index options are European.
Ask
Also: offer
The lowest price a seller in the market is currently willing to accept, also called the offer. You buy at the ask when you buy at the market.
Assignment
When the seller of an option is required to fulfil it after a holder exercises: to sell the underlying (short call) or to buy it (short put) at the strike.
ATR stop
A stop placed a multiple of the average true range away from the entry, so its distance follows how much the price usually moves.
Stop = Entry − k × ATR (long)
Average true range
Also: ATR
The average of the true range — the largest of the high minus the low, the high minus the previous close, and the previous close minus the low — usually over 14 periods.
B
Backtest
Testing a set of trading rules on past prices to see how they would have behaved. Results are simulated, made with hindsight, and depend on the costs and fills assumed.
Backwardation
When futures trade below the spot price, and later expiries below earlier ones, as can happen when the underlying is scarce now or pays a high yield.
Base and quote currency
In a pair such as EUR/USD the first currency (base) is the one bought or sold; the second (quote) is the one the price is in. EUR/USD at 1.2500 means one euro costs 1.25 US dollars.
Basis
The difference between a future’s price and the spot price of its underlying. It narrows towards zero as expiry approaches.
Basis = Futures price − Spot price
Bed and breakfasting rule (UK)
Also: 30-day rule
The UK rule that matches a sale with shares of the same company bought in the next 30 days, before the Section 104 pool, so selling and buying back quickly does not create a loss to claim.
Beta
How much an asset’s returns have moved with a benchmark’s: 1 moves with it, above 1 more, below 1 less, from past data.
β = Cov(asset, market) ÷ Var(market)
Bid
The highest price a buyer in the market is currently willing to pay. You sell at the bid when you sell at the market; the best bid is the top of the buy side of the order book.
Bid-ask spread
Also: spread
The gap between the best ask and the best bid. It is a cost every round trip pays: buying at the ask and selling at the bid straight away loses the spread. Narrow spreads mean a liquid market.
Spread = Ask − Bid
Bollinger Bands
A moving average with bands a set number of standard deviations above and below it, usually 20 periods and 2 deviations; the bands widen when prices swing more.
Bands = SMA20 ± 2σ20
Break-even price
The sale price at which a trade neither gains nor loses after all its costs. For a purchase it sits above the buy price by the round-trip costs per share.
Break-even = (Buy value + Buying costs + Selling costs at that price) ÷ Quantity
Brokerage
Also: commission
The fee a broker charges for each trade: a flat amount, a percentage of the trade’s value, or both with a minimum. It is charged on buys and sells, so a round trip pays it twice.
Butterfly spread
Three strikes of one expiry: one option bought at each outer strike and two sold at the middle one. It costs little and gains most if the price ends at the middle strike.
Buying power
How much a margin account can buy with its cash and loan value at the broker’s margin rate. It shrinks as positions lose value or when the broker raises its margin requirement.
C
CAGR
Also: compound annual growth rate
The steady yearly rate that would turn a starting value into an ending value over a period, with compounding.
CAGR = (End ÷ Start)^(1 ÷ years) − 1
Calendar spread
Also: time spread
Selling an option of a near expiry and buying one of a later expiry at the same strike. It works from the faster time decay of the shorter-dated option.
Call option
Also: call
The right, not the obligation, to buy the underlying at the strike price until or at expiry. A long call gains when the underlying rises above the strike by more than the premium paid.
Calmar ratio
The yearly return divided by the maximum drawdown over the same period.
Calmar = Annual return ÷ |Maximum drawdown|
Cash-secured put
Selling a put while holding enough cash to buy the shares at the strike if assigned. The premium is the maximum gain; the risk is owning the shares after a fall.
Central pivot range
Also: CPR
Three levels from the previous day’s high, low and close — the pivot, the bottom central level and the top central level — whose width is compared across days.
BC = (H + L) ÷ 2 · TC = 2 × Pivot − BC
CFD
Also: contract for difference
A contract with a broker that pays the difference in an instrument’s price between opening and closing, without owning it. CFDs are leveraged; many retail accounts lose money with them.
Contango
When futures trade above the spot price, and later expiries above earlier ones, usually because of the cost of carrying the underlying until delivery.
Contract multiplier
Also: contract size
The amount of the underlying one futures or options contract stands for, set by the exchange: the value of one contract is its price times the multiplier.
Contract value = Price × Multiplier
Correlation
How closely two series of returns move together, from −1 (opposite) through 0 (unrelated) to +1 (together). Correlations change over time.
Cost basis
What an investment cost for tax purposes, usually the price paid plus buying costs, adjusted for corporate actions; the gain or loss on a sale is measured from it.
Cost of carry
What it costs to hold the underlying until a future expires — interest and storage — less what it pays, such as dividends. It links the futures price to spot.
Fair value = S × e^((r − q) × T)
Covered call
Owning the underlying and selling a call on it. The premium adds income and a small cushion, but gains above the strike are given up because the shares may be called away.
Cross rate
An exchange rate between two currencies worked out through a third, such as EUR/JPY from EUR/USD and USD/JPY.
EUR/JPY = EUR/USD × USD/JPY
CTT (India)
Also: commodity transaction tax
India’s commodity transaction tax on the sale side of non-agricultural commodity futures and options traded on Indian exchanges, collected by brokers like STT.
D
Delta
How much an option’s price changes for a one-unit change in the underlying: between 0 and 1 for calls, 0 and −1 for puts. It is also a rough guide to the share of the underlying a position behaves like.
Dividend purification
Also: purification
Giving away to charity the part of a dividend or gain that comes from a company’s non-compliant income, in proportion to that income’s share.
To purify = Dividend × Non-compliant income ÷ Total income
Dollar-cost averaging
Also: DCA, cost averaging
Buying a fixed amount at regular intervals whatever the price, so more units are bought when the price is low and fewer when it is high. The average cost is the harmonic mean of the prices paid.
DP charges (India)
Also: depository participant charges
A fee Indian depository participants charge when shares leave a demat account, usually a flat amount for each company sold on a day, whatever the quantity.
Drawdown
Also: maximum drawdown
A fall in an account or price from a peak to a later low, in money or percent. The maximum drawdown is the deepest such fall over a period; recovering from it needs a larger percentage gain.
Drawdown = Low ÷ Peak − 1
E
Expectancy
What a set of trades earns on average per trade, after costs, from its win rate and its average win and loss.
E = Win rate × Average win − (1 − Win rate) × Average loss
Expected move
The one-standard-deviation price range that an option’s implied volatility implies by a date, under a lognormal model. It describes what prices imply, not a forecast.
Expected move ≈ S × IV × √(days ÷ 365)
Expected shortfall
Also: CVaR, conditional value at risk
The average loss on the days that are worse than the value at risk, which describes the tail VaR leaves out.
Exponential moving average
Also: EMA
A moving average that gives more weight to recent prices, so it reacts faster than a simple one of the same length.
EMA = α × C + (1 − α) × EMA previous, α = 2 ÷ (n + 1)
Exposure margin (India)
An extra margin Indian clearing corporations add on top of SPAN margin for futures and short options, as a percentage of the contract value, to cover risks SPAN does not.
F
Fair value of a future
The futures price at which buying the underlying now and holding it would cost the same as buying the future, given interest and income until expiry.
Fibonacci retracement
Levels at set ratios — usually 23.6%, 38.2%, 50%, 61.8% and 78.6% — of a price swing between a high and a low that the person drawing them chose.
Level = High − Ratio × (High − Low)
FIFO
Also: first in, first out
Matching each sale to the oldest shares bought first. Many countries’ tax rules, such as India’s for shares held in demat accounts, use it.
Financial transaction tax (France, Italy, Spain)
Also: FTT, TTF, ITF
A tax some European countries charge on purchases of shares of their larger listed companies, as a percentage of the price: France’s TTF, Italy’s FTT and Spain’s ITF. Each sets its own scope, rate and exemptions.
FINRA TAF (US)
Also: trading activity fee
The Trading Activity Fee FINRA charges its member brokers on sales of shares, per share with a maximum per trade; brokers usually pass it on to the seller.
Forward rate
Also: forward points
The exchange rate agreed now for a currency exchange on a later date, set by the spot rate and the two currencies’ interest rates; the difference from spot is quoted as forward points.
F = S × (1 + r quote × t) ÷ (1 + r base × t)
Funding rate
The periodic payment between long and short holders of perpetual futures, as a percentage of the position’s value. When it is positive longs pay shorts; when negative shorts pay longs.
Funding = Position value × Funding rate
Futures contract
An exchange-traded agreement to buy or sell a set quantity of an underlying at a price fixed now, for settlement on a later date. Both sides post margin, and gains and losses are settled daily.
G
Gamma
How much delta changes for a one-unit change in the underlying. It is highest for at-the-money options near expiry, where delta can swing fast.
Gap
A jump in price between one trade and the next with nothing in between, often at the open after news. A stop order in the gap fills at the first price after it, not at the stop.
Grid trading bot
An automated set of buy and sell orders placed at fixed steps over a price range, so each completed buy-sell pair within the range earns the step less fees.
GST or VAT on brokerage
Where trading services are taxed, the broker adds goods and services tax or value added tax on its own fees — in India GST on brokerage and exchange charges — but not on the value of the shares traded.
I
Impermanent loss
What a liquidity provider gives up against simply holding the two tokens when their price ratio moves; it is reversed only if the ratio returns, and fees may offset it.
IL = 2√r ÷ (1 + r) − 1 (50/50 pool, r = price ratio)
Implied volatility
Also: IV
The volatility that makes a pricing model such as Black–Scholes return an option’s market price. It shows how large the market prices future moves to be, not their direction.
In-sample and out-of-sample
Splitting data into a part used to build or tune rules (in-sample) and a part kept back to test them (out-of-sample), to see whether results hold on data the rules have not seen.
In, at and out of the money
Also: ITM, ATM, OTM, moneyness
Where the underlying stands against the strike. A call is in the money above the strike and out of the money below it; a put the other way round; at the money means near the strike.
Index price
An average of a coin’s spot price across several exchanges, which crypto derivatives exchanges use to anchor their mark price and funding.
Initial margin
The money a broker or clearing house requires to open a leveraged position, as an amount per contract or a percentage of its value.
Intrinsic value
What an option would be worth if exercised now: for a call, how far the underlying is above the strike; for a put, how far it is below; never less than zero.
Call: max(0, S − K) · Put: max(0, K − S)
Iron condor
A short put spread below the price and a short call spread above it, all of one expiry. It gains if the price stays between the short strikes; the loss is capped by the long strikes.
Isolated and cross margin
Also: cross margin, isolated margin
With isolated margin only the margin put on one position can be lost on it; with cross margin the whole account balance backs every position, which delays liquidation but puts the balance at risk.
IV rank
Where today’s implied volatility sits between its lowest and highest values over a past period, from 0 to 100.
IV rank = (IV now − IV low) ÷ (IV high − IV low) × 100
K
Kelly criterion
The fraction of capital to stake on each bet that maximises long-run growth for a known edge. Real edges are uncertain, and betting more than Kelly lowers growth while deepening drawdowns.
f* = W − (1 − W) ÷ R (W win rate, R payoff ratio)
L
Leverage
Controlling a position larger than the money put up. With 10:1 leverage a 1% move in the price is a 10% move in the money at risk, in either direction.
Leverage = Position value ÷ Margin
Limit order
An order to buy at no more than a set price, or to sell at no less. The price is protected, but the order may fill only in part, or not at all, if the market never reaches the limit.
Linear and inverse contracts
Linear contracts are margined and settled in a stablecoin and their profit is linear in the price; inverse contracts are margined in the coin itself, so profit in coins depends on the reciprocal of the price.
Liquidation
Also: liquidation price
The forced closing of a leveraged position when its losses use up the margin down to the maintenance level. The liquidation price depends on the leverage, the margin mode and the exchange’s maintenance rate.
Liquidity
How easily an instrument can be bought or sold in size without moving its price. Liquid markets have narrow spreads and deep order books; illiquid ones cost more to trade.
Liquidity pool
Tokens locked in a decentralised exchange’s smart contract that traders swap against; providers earn a share of the trading fees in return for the price risk.
Look-ahead bias
Using information in a backtest before it would have been known, such as acting on a day’s close at that day’s open; it makes simulated results look better than they could have been.
Lot (forex)
Also: standard lot, mini lot, micro lot
The trade size of a currency position: a standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000.
Lot size
The number of units of the underlying in one contract, as exchanges such as India’s set it for each futures and options contract; positions are traded in whole lots.
M
MACD
The difference between a 12- and a 26-period EMA of closes, with a 9-period EMA of that difference as its signal line and their gap as the histogram.
MACD = EMA12 − EMA26
Maintenance margin
The minimum equity that must stay in a margin account while a position is open. When equity falls below it, the broker asks for more money or closes positions.
Maintenance margin rate
The share of a position’s value an exchange requires as minimum margin; it often rises in tiers for larger positions, which moves the liquidation price closer.
Margin call
A demand from the broker to add money or reduce positions because the account’s equity has fallen below the maintenance margin. If it is not met, the broker can close positions without asking.
Margin level
A forex or CFD account’s equity as a percentage of the margin its open positions use. Brokers warn and then close positions as it falls towards their margin-call and stop-out levels.
Margin level = Equity ÷ Used margin × 100%
Margin trading (Japan)
Also: shinyo torihiki, 信用取引
Japan’s shinyo torihiki: buying shares with money, or selling shares, borrowed from a securities company against collateral, under the exchanges’ and the industry’s margin rules, with interest or lending fees and a repayment deadline.
Margin trading facility (India)
Also: MTF
An Indian broker’s loan to buy shares on margin: you pay part of the price, the broker funds the rest against the shares and charges interest daily until you sell or pay it back.
Mark price
The reference price an exchange uses to value open futures positions and trigger liquidations, derived from the index price so a brief spike on one exchange does not close positions.
Mark-to-market
Settling the gains and losses of a futures position every day at that day’s settlement price, so money moves between the accounts daily.
Market order
An order to buy or sell at once at the best price available. It is filled quickly but the price is not fixed: in a fast or thin market it can fill at worse prices than the last trade.
Max pain
The strike at which the options of one expiry would be worth the least in total to their holders at expiry, worked out from the open interest of every strike.
Money-weighted return
Also: MWR
A portfolio’s return including the effect of when money went in and out: the internal rate of return of its cash flows, as XIRR works it out.
N
Negative balance protection
A rule or broker promise that a retail client cannot lose more than the money in the account on leveraged products such as CFDs. Retail clients of brokers regulated in the EU and the UK have it on CFDs.
O
On-balance volume
Also: OBV
A running total that adds a period’s volume when the close rises and subtracts it when the close falls.
Open interest
Also: OI
The number of futures or options contracts open at the end of a day: opened and not yet closed, exercised or expired. It rises when new positions open and falls when they close.
Order book
Also: market depth
The list of open buy and sell limit orders for an instrument, by price. Its depth shows how much could trade near the current price before the price moves.
Overfitting
Also: curve fitting
Tuning rules so closely to past data that they capture its noise; such rules tend to look good in a backtest and do worse on new data.
P
Partial fill
When only part of an order’s quantity trades, usually a limit order in a market without enough volume at the price. The rest stays open until it fills, expires or is cancelled.
Payoff ratio
Also: reward to risk
The average winning trade divided by the average losing trade.
Payoff ratio = Average win ÷ Average loss
Perpetual futures
Also: perpetual swap, perp
Crypto futures without an expiry date, kept near the spot price by periodic funding payments between longs and shorts.
Physical and cash settlement
Physically settled contracts end with delivery of the underlying; cash-settled ones with a payment of the difference. India’s stock futures and options settle physically, and index contracts in cash.
Pip
The usual unit of a currency pair’s price change: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen.
Pip value = Pip size × Units (in the quote currency)
Pipette
A tenth of a pip: the extra decimal many brokers quote, 0.00001 for most pairs and 0.001 for yen pairs.
Pivot points
Levels worked out from the previous period’s high, low and close: a pivot and support and resistance levels above and below it.
Pivot = (High + Low + Close) ÷ 3
Position sizing
Choosing how many shares, lots or contracts to trade so that the loss at the planned stop is a set amount or share of the account.
Units = Amount risked ÷ |Entry − Stop| per unit
Premium
Also: option price
The price of an option, paid by the buyer to the seller. It is the option’s intrinsic value plus its time value, and is quoted per unit of the underlying.
Premium = Intrinsic value + Time value
Profit factor
Gross profit of the winning trades divided by gross loss of the losing ones; above 1 the trades made money in total.
Profit factor = Gross profit ÷ Gross loss
Protective put
Owning the underlying and buying a put on it, which sets a floor under the position until expiry for the cost of the premium.
PTM levy (UK)
A small flat charge on larger UK share trades that funds the Panel on Takeovers and Mergers, collected by brokers when a trade’s value is above the levy’s threshold.
Put option
Also: put
The right, not the obligation, to sell the underlying at the strike price until or at expiry. A long put gains when the underlying falls below the strike by more than the premium paid.
Put-call ratio
Also: PCR
Put open interest or volume divided by call open interest or volume, for one expiry or a whole chain: a summary of how positions are spread between puts and calls.
PCR = Put open interest ÷ Call open interest
R
R multiple
A trade’s result in units of the amount risked on it (1R). A trade that risked 100 and made 250 is +2.5R; one stopped out at its planned stop is −1R.
R = Profit or loss ÷ Amount risked
Regulation T (US)
Also: Reg T
The US Federal Reserve rule that sets how much credit brokers may give when shares are bought on margin (the initial requirement); FINRA rules and brokers set the maintenance margins that apply after the purchase.
Retail leverage limits
Caps regulators set on the leverage brokers may offer retail clients on CFDs and spot forex, by asset class: highest for major currency pairs and lowest for the most volatile assets. The EU and the UK set such caps, and so do other regulators.
Rho
How much an option’s price changes for a one-percentage-point change in the interest rate. It matters most for long-dated options.
Risk of ruin
The chance that a run of losses brings an account down to a level where trading has to stop, from its win rate, payoff and the share of capital risked per trade.
ROE (crypto futures)
Also: return on equity
The profit or loss of a leveraged position as a percentage of the margin put up, not of the position’s value; 10× leverage turns a 1% price move into about 10% ROE.
ROE = Profit ÷ Initial margin × 100%
Roll
Also: rollover
Closing a futures position near expiry and opening the same position in a later expiry, to keep the exposure. The price gap between the two contracts is the roll cost or gain.
Round-trip cost
Everything a buy and the later sale cost together: commissions, taxes and fees on both sides, and the spread. The price has to move at least this much before a trade breaks even.
RSI
Also: relative strength index
Welles Wilder’s 0–100 measure of the size of recent gains against recent losses, usually over 14 periods with Wilder’s smoothing.
RSI = 100 − 100 ÷ (1 + Average gain ÷ Average loss)
S
SEC fee (US)
Also: section 31 fee
A small fee on sales of US-listed shares that exchanges pay to the Securities and Exchange Commission and brokers pass on to sellers, as a rate per dollar of the sale value. Buys do not pay it.
Section 104 pool (UK)
Also: share pool
Under UK tax rules, shares of one company not matched to same-day or 30-day purchases form one pool with an average cost, from which disposals are taken.
Shariah screening
Checking whether a company’s shares fit Islamic principles: its main business must be permissible, and ratios such as debt, cash and non-compliant income must stay under thresholds that standards like AAOIFI set.
Sharpe ratio
Excess return over the risk-free rate per unit of volatility, usually annualised. Higher means more return for the swings taken, measured over the past period only.
Sharpe = (Return − Risk-free rate) ÷ Volatility
Simple moving average
Also: SMA
The average closing price of the last n periods, recalculated each period.
SMA = (C₁ + … + Cₙ) ÷ n
Slippage
The difference between the price expected when an order is sent and the price it actually fills at, larger in fast or illiquid markets and for market and stop orders.
Sortino ratio
Like the Sharpe ratio but dividing by downside deviation, which counts only returns below a target, so upside swings are not treated as risk.
SPAN margin
A method exchanges and clearing houses use to set margin for futures and options portfolios from the worst loss over a set of price and volatility scenarios, so offsetting positions need less margin.
Specific identification
Choosing which shares a sale comes from, where the tax rules and the broker allow it, as the US does with adequate records.
Spread bet (UK and Ireland)
Also: spread betting
A leveraged bet of a stake per point of price movement, offered by brokers in the UK and Ireland; gains are generally free of UK capital gains tax, and a loss can be larger than the margin of the bet; in the UK, retail clients cannot lose more than the money in their account.
Stamp duty and SDRT (UK)
Also: stamp duty reserve tax, SDRT
The UK’s tax on buying shares in UK companies: Stamp Duty Reserve Tax on electronic purchases and Stamp Duty on paper transfers, charged to the buyer as a percentage of the price. Some shares are exempt.
Stamp duty on trades (India)
A duty India charges on the buy side of trades in shares and derivatives, collected by the exchanges or depositories at rates set for each segment.
Stochastic oscillator
Where the latest close sits within the high–low range of the last n periods, from 0 to 100, with a moving average of it as a signal line.
%K = (C − Lowest low) ÷ (Highest high − Lowest low) × 100
Stop order
Also: stop-loss order, stop loss
An order that becomes a market order when the price reaches a trigger level, often used to close a position after a set loss. It does not guarantee the trigger price: after a gap it can fill well beyond it.
Stop-limit order
An order that becomes a limit order when the price reaches its trigger. It will not fill worse than the limit, but in a fast move it may not fill at all, leaving the position open.
Stop-out level
The margin level at which a forex or CFD broker starts closing positions automatically, largest loss first, to stop the account going negative. Each broker sets its own level; for retail CFD accounts in the EU and the UK, positions must be closed once the funds fall to half the margin the open positions need.
Straddle
A call and a put at the same strike and expiry. Bought, it gains from a large move either way; sold, it gains if the price stays near the strike, with large risk on both sides.
Strangle
A call and a put of the same expiry at different strikes, usually both out of the money. Cheaper than a straddle to buy; it needs a bigger move to gain.
Strike price
Also: exercise price
The price at which an option lets its holder buy (call) or sell (put) the underlying. Strikes are listed in steps set by the exchange.
STT (India)
Also: securities transaction tax
India’s securities transaction tax: a tax on the value of trades in listed shares and derivatives on Indian exchanges, at rates that depend on the segment and the side of the trade. Brokers collect it on each contract note.
Superficial loss (Canada)
Canada’s rule that denies a capital loss when the same or an identical property is bought within 30 days before or after the sale and still held 30 days after it; the denied loss is added to the new cost.
Survivorship bias
Distortion from testing only on instruments that still exist today, leaving out those that were delisted or failed, which makes past results look better than they were.
Swap (rollover)
Also: overnight financing
The interest a forex or CFD position pays or earns for being held past the daily cut-off, from the difference between the two currencies’ interest rates plus the broker’s markup.
T
The Greeks
The sensitivities of an option’s price to its inputs — delta and gamma to the underlying, theta to time, vega to volatility and rho to interest rates — worked out from a pricing model.
Theta
Also: time decay
How much an option’s price changes as one day passes with nothing else changing; usually negative for buyers. Time decay speeds up as expiry approaches.
Tick size
The smallest step by which an instrument’s price can change, set by the exchange.
Tick value
How much money one tick of price movement is worth on one contract.
Tick value = Tick size × Multiplier
Time in force
Also: day order, good till cancelled, GTC
How long an order stays active: a day order expires at the end of the session, a good-till-cancelled order stays until it fills or you cancel it, and some brokers set their own limits.
Time value
The part of an option’s premium above its intrinsic value: what the chance of a further favourable move before expiry is worth. It shrinks as expiry nears and is zero at expiry.
Time value = Premium − Intrinsic value
Time-weighted return
Also: TWR
A portfolio’s return with the effect of deposits and withdrawals removed, by chaining the returns between cash flows; it measures the investments, not the timing of money in and out.
TWR = Π (1 + r of each sub-period) − 1
Trailing stop
A stop that follows the price at a set distance or percentage as it moves in your favour and stays put when it moves against you, so part of a gain can be kept if the price turns.
Triple swap
The one night of the week, usually Wednesday to Thursday, when a forex position is charged three days of swap to cover the weekend settlement.
V
Value at risk
Also: VaR
A loss that a portfolio should not exceed on a given share of days, such as 95%, under a stated model and past data. It says nothing about how large losses are on the remaining days.
Vega
How much an option’s price changes for a one-percentage-point change in implied volatility. Long options gain from rising volatility; short options lose.
Vertical spread
Also: bull call spread, bear put spread
Buying one option and selling another of the same type and expiry at a different strike, which caps both the maximum gain and the maximum loss of the position.
Volatility
Also: historical volatility
How much returns swing, as the standard deviation of periodic returns, usually annualised. Historical volatility is measured from past prices; implied volatility is priced into options.
σ annual = σ daily × √252
Volatility skew
Also: volatility smile
The pattern of implied volatility across strikes of one expiry. Equity index options usually show higher volatility for low strikes; a U-shape is called a smile.
VWAP
Also: volume-weighted average price
The average price of the trades of a session weighted by their volume, from the session’s start; a common benchmark of execution prices.
VWAP = Σ(Typical price × Volume) ÷ Σ Volume
W
Wash sale (US)
Under US tax rules, a loss on a sale is not allowed when substantially identical securities are bought within 30 days before or after it; the loss is added to the cost basis of the new shares instead.
Win rate
The share of trades that ended in profit. On its own it says little: a low win rate with large wins can earn more than a high one with small wins.
X
XIRR
The yearly rate that makes the present value of dated cash flows add up to zero: the money-weighted return of deposits and withdrawals made on different dates.
Σ Cash flow ÷ (1 + r)^(days ÷ 365) = 0
Z
Zakat on shares
The yearly zakat due on shares held, which scholars work out differently for shares held to trade (on market value) and shares held to keep (on the zakatable assets behind them).
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For education only, not investment advice: no tool here tells you what to buy, sell or hold. Results use only the figures you enter, the files you load (read in your browser, never uploaded) and the published rules each page names. Check them against your broker's or exchange's own figures, and consider a licensed or registered adviser for advice on your situation.
About the Trading Glossary: Stocks, Options, Futures & Forex
A plain-English glossary of the words traders and investors use: orders and execution, costs and charges in different countries, margin and leverage, options and the Greeks, futures, forex and CFDs, crypto derivatives, risk and position sizing, returns and statistics, indicators and levels, the tax-lot rules of several countries, and Islamic finance.
Each term has a short definition in its own words, the formula where there is one, related terms and, where a calculator on MySmartCoPilot works it out, a link to it. Type in the box to find a term, or pick a group. Terms that belong to one country’s rules say which country.
How to use it
- Type a word in the box: the list narrows to terms whose name, other names or definition contain it.
- Or pick a group, such as Options or Margin and leverage, to see only its terms.
- Jump to a letter with the A–Z links.
- Follow “Work it out” to the calculator for a term, or a “See also” link to a related term.
Examples
0.0001 for most currency pairs, 0.01 for pairs quoted in yen · Pip value = pip size × units
How much an option’s price changes as one day passes; time decay speeds up as expiry nears
The margin level at which a forex or CFD broker starts closing positions on its own
A loss is not allowed when the same securities are bought within 30 days before or after the sale
How the definitions are written
Every definition is original, no longer than 60 words, and describes what a term means, not what to do about it. Rules that differ by country — taxes on trades, margin rules, tax-lot matching — name the country they belong to, and figures that change, such as tax rates, are left to the official sources and to the calculators that use them. Formulas are written the way the calculators on this site work them out.
From a word to a calculation
Many terms link to a calculator: pip and lot to the Position Size Calculator, the Greeks to the Black–Scholes Calculator, payoffs to the Option Payoff Calculator, pivots to the Pivot Point Calculator and drawdowns to the Loss Recovery Calculator. The Trading section lists them all.
Limitations
- Definitions are short summaries; regulators, exchanges and brokers publish the full rules for their markets.
- Country rules change: check the official source of a rule before you rely on it.
- A term can mean slightly different things at different brokers (a stop-out level, a margin call); the broker’s own terms decide.
Privacy
Everything happens in your browser. What you enter or open here is not uploaded or stored by MySmartCoPilot.
Frequently asked questions
What is the difference between a margin call and a stop-out?
A margin call is a warning or demand for more money when equity falls below the maintenance margin; a stop-out is the level at which the broker closes positions without asking. Both depend on the broker’s own levels.
What is the difference between implied and historical volatility?
Historical volatility is measured from past price changes; implied volatility is the volatility that makes an option-pricing model match an option’s market price. The first describes the past, the second what option prices assume.
Are the tax terms the same in every country?
No. Matching sales to purchases follows each country’s rules: first in, first out in many places, the share pool and 30-day rule in the UK, the adjusted cost base in Canada. The glossary names the country of each rule.
Does the glossary say which strategies work?
No. It explains what words mean and how quantities are calculated. It does not rate strategies, instruments or markets.
How do I find a term quickly?
Type part of it in the box at the top, such as “margin” or “pip”: the list narrows as you type. Each term also has its own link, so you can share or bookmark it.