Glossary of trading: M-Z

Below you will find some terms and names that can be good to know as you move through the world of finance and trading.

Mid price

The mid price is the average of the bid price and the offer price for a security.

Example: The closing prices for shares in Company PPP was bid 78 and offer 80. Thus, the mid price is 79.

NASDAQ-100

This is a stock market index comprised of 103 (not 100) equity securities issued by 100 of the largest non-financial companies listed on NASDAQ.

Over-the-counter (OTC)

Trades that do not take place on an Exchange are said to take place over-the-counter (OTC).

Perpetual bond

A perpetual bond has no maturity date. It will continue to pay interest perpetually to the bond holder and the principal will never be paid back.

Quant fund

A quant fund utilizes quantitative approaches and computer models to make investment decisions.

The opposite of a quant fund is a fund that uses qualitative approaches, e.g. letting a fund manager make the investment decisions.

Real rate of return

The amount of interest earned on an investment minus inflation.

Example: I earned 7% interest on this investment, but the inflation during that same period was 4% so the real rate of return was only 3%.

Stock

The capital stock of a company constitutes the equity stake of the corporation’s owners.

The stock is portioned into shares. The owners are shareholders in the company.

Take a bath

The slang expression ”to take a bath” means losing a large amount of money on an investment.

Thin market

The market is thin when there are few bids, few offers, few trades, high spreads and high volatility.

Umbrella fund

A fund that contains several sub-funds, where each sub-fund has its own particular focus, such as investing in a specific geographical region or industry.

Once you have put money into an umbrella fund, the transaction costs associated with moving money between the various sub-funds are usually very low.

Undersubscribed

Sometimes when a company issues new stock, it doesn’t manage to sell all of it right away. In such a scenario, the new stock issue is said to be undersubscribed.

Vanilla

In English, the adjective vanilla is commonly used to denote something that is common, generic and bland.

Example: A vanilla bond is a bond without any special features.

Weak market

A market where the spreads are large and the volume is low.

XD

XD = Ex Dividend.

If a share offered for sale is market XD, it means that the buyer will not get the rights to current dividends. The rights to current dividends will instead stay with the seller.

Yankee bond

A USD denominated bond issued in the United States by a foreign bond issuer.

Zero Coupon Bond

This is a type of bond where the holder of the bond doesn’t receive any periodic payments of interest during the lifetime of he bond. Instead, the holder recieves a lump sum when the bond reaches its maturity. The cost of buying a freshly issued Zero Coupon Bond is much lower than the lump sum the holder will recieve when the bond reaches its maturity date.