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.
