Financial Terms Used in Banking

Financial Terms used in Banking

Abandon

The act of an option holder in electing not to exercise or offset an option.

Accommodation Trading

Non-competitive trading entered into by a trader, usually to assist another with illegal trades.

Account

Record of all transactions.

Account Balance

Same as balance.

Accreted Interest

The difference between par value of a zero coupon security and purchase price. Also called original issue discount. Yearly accreted interest is the amount of accreted interest "earned" each year that you hold a zero coupon investment.

Accrued Interest

The amount of interest that the buyer owes the seller on transactions involving fixed income securities, such as most bonds and notes.

ACH

Automated Clearing House-A method of transferring funds. Member banks wire instructions to the Automated Clearing House which then wires to the appropriate receiving bank.

Acreage Allotment

A voluntary limitation on the number of acres farmers plant to a given crop. Established under the federal farm program to stimulate production of certain crops of limited supply, and curtail production of others in ample supply.

Actuals

The physical or cash commodity, as distinguished from a commodity futures contract. Also see Cash and Spot Commodity.

Advanced Option

Multiple option strategy. See Spread Order, Straddle, Strangle, Buy/Write, Sell/Write, and Unwind.

Afloat

Commodities in harbor or in transit in vessels.

Agency Security

Any of the bills, notes, and bonds issued by agencies of the federal government.

Agent

An individual employed to act on behalf of another (the principal).

Aggregate Demand

The sum of government spending, personal consumption expenditures, and business expenditures.

Aggregation

The principle under which all futures positions owned or controlled by one trader (or group of traders acting in concert) are combined to determine reporting status and compliance with speculative limits.

All or None (AON)

A limit price order that instructs the broker to fill the whole order at the stated price or not at all.

Allowances

The discounts (premiums) allowed for grades or locations of a commodity lower (higher) than the par (or basis) grade or location specified in the futures contract. See Differentials.

American Depository Receipt (ADR)

A share of stock that is issued by an American bank and is backed by foreign securities on deposit.

American Stock Exchange (AMEX)

Located at 86 Trinity Place, New York, NY; a major stock and option exchange.

Amortization

An accounting term indicating the appointment of an incurred expense over the life of an asset. For example, if a three-year magazine subscription (an expense) is paid in year one, it should be "amortized" (or "spread out") over the three-year life of the subscription (the asset).

Amortize

An artificial method of allocating over the life of the instrument, income received or given up at maturity.

Annuity

A contract with an insurance company in which the individual makes either lump-sum or periodic payments to the insurance company and in return receives a lifetime income (usually guaranteed).

AON

See All or None.

Appreciation

A currency is said to appreciate when price rises in response to market demand; an increase in the value of an asset.

Approved Delivery Facility

Any bank, stockyard, mill, storehouse, plant, elevator or other depository that is authorized by an exchange for the delivery of commodities tendered on futures contracts.

Arbitrage

Simultaneous purchase of cash commodities or futures in one market against the sale of cash commodities or futures in the same or a different market to profit from a discrepancy in prices. Also includes some aspects of hedging. See Spread, Switch.

Arbitrageur

One who engages in arbitrage.

Arbitration

A method of settling a dispute by utilizing an impartial individual or individuals. All exchanges and securities associations have adopted a Code of Arbitration through which all disputes between firms, employees and firms, and firms and clearing corporations are settled.

Asian Option

An option whose payoff depends on the average price of the underlying asset during some portion of the life of the option.

Ask (Asked Price)

The lowest round lot price at which a broker will offer for sale a security on an exchange or over-the-counter market.

Ask Or Offer Price

The lowest price any potential seller is willing to accept for a particular option.

Ask Rate

The lowest price at which a financial instrument is offered for sale (as in bid/ask spread).

Ask Size

The amount of shares being offered for sale at the ask rate.

As-of

A term used to describe any trade processed not on the actual trade date, but "as of" the actual trade date.

Asset

Goods available to pay debts. Anything owned by an individual or corporation.

Asset Allocation

Investment practice that distributes funds among different markets (forex, stocks, bonds, commodity, real estate) to achieve diversification for risk management purposes and/or expected returns consistent with the outlook of the investor, or investment manager.

Assign

Action of the option holder (buyer) requiring the option seller (writer) to complete the terms of the option contract. The writer would be required to either buy stock from the holder or deliver stock to the holder.

Assignable Contract

One which allows the holder to convey his rights to a third party. Exchange-traded contracts are not assignable.

Associated Person (AP)

An individual who solicits orders, customers, or customer funds on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor, a Commodity Pool Operator or a Leverage Transaction Merchant who is registered with the Commodity Futures Trading Commission.

At-the-Market

An order to buy or sell a futures contract at whatever price is obtainable when the order reaches the trading floor. Also called a Market Order.

At-The-Money

An option whose strike price is equal-or approximately equal-to the current market price of the underlying futures contract.

Attorney in Fact

A person who is allowed to transact business and execute documents on behalf of another person because one holds power of attorney.

Auction

The issuance of new Treasury bills, notes, and bonds at stated intervals by the Federal Reserve.

Auction Market

A market where buyers and sellers enter simultaneous bids and offers such as the New York Stock Exchange.

Audit Trail

The record of trading information identifying, for example, the brokers participating in each transaction, the firms clearing the trade, the terms and time of the trade, and, ultimately, and when applicable, the customers involved.

Average

Also known as an index, a mathematical computation that indicates the value of a number of securities as a group. The three most popular averages are the Dow Jones Industrial Average (DJI), Standard & Poor’s (S&P) 500, and the New York Stock Exchange Composite. The average, which may be market-weighted, share-weighted, or price-weighted, indicates performance.

Average Life

The estimate of maturity for a pool of mortgage-backed securities.