Financial terminology 1 Flashcards
What is an Electronic Trading System
A piece of computer software that allows users to place orders over a network with a financial intermediary. The first widespread platform was Nasdaq. Front end.
What is an Algorithmic Trading System
Uses a computer program that follows a defined set of instructions (an algorithm) to place a trade. If x then y. the trade, in theory, can execute and generate profits faster than a human trader. Front Office
What are pricing and risk systems
risk-based pricing assesses the risk of offering credit. It assesses and creates a risk profile from the credit characteristics. Middle office.
What is a Trade Order Management System (OMS)?
An electronic system developed to execute securities orders in an efficient and cost-effective manner. Brokers and dealers use an OMS when filling orders for various securities and can track the progress of each order – it’s a bit like a CRM. Used by front end and middle end.
What is an Asset Class?
A grouping of investments that exhibit similar characteristics and are subject to the same laws and regulation. They behave similarly. Different asset classes have little or negative correlation with eachother. Equities, cash, real estate etc are examples. Helpful and used to visualise and diversify portfolios.
what is a derivative?
- a product, a financial contract, set between two or more parties, that derive their value from an underlying asset, group of assets, or benchmark. Prices for derivatives derive from fluctuations in the underlying asset. Derivatives are usually leveraged instruments. Common derivates include futures contracts, options and swaps.
What is an option?
An Option is a financial instrument that is based on the value of underlying securites such as stocks. It is a financial derivative. An options contract offers the buyer the opertunity to buy or sell, depending on the type of contract they hold, the underlying asset. Unlike futures, the holder is not required to buy or sell the asset. Options contracts have specific expiration dates by which the holder must exercise their option. Stated price of an option is known as a strike price.
What is a future?
Futures are derivative financial contracts that obligate parties to buy or sell an asset at a predetermined future date and price. Buyer must purchase and seller must sell the underlying asset, regardless of current market at the expiration date. Futures can be used for hedging or speculation.
What is a fixed income investment?
A type of investment security that pays the investor a fixed amount on a fixed schedule, until its maturity date. At maturioty, the investors are repaid the principal amount they invested. Government and corporate bonds are most common types of fixed income products. It is an asset class. Pays out in form of fixed interest or dividends.
What are equities?
Equities are stocks or shares in a company. Don’t pay fixed rate interest – not fixed income. Potential for high returns
what is Currencies/FX?
This is the trading of one currency for another. Takes place on the foreign exchange market, known as the forex market. Largest and most liquid market in the world, trillions of dollars changing hands each day. Electronic netwoek of banks, brokers, institutions and individual traders.
What are commodities?
a commodity is a basic goof used in commerce that is interchangeable with other goods of the same type. Usually refers to a raw material used to manufacture finished goods. They are traded on the exchange, bought and sold directly in the spot (cash) market or via derivatives such as futures and options. Harf commodities refer to energy and metal products, soft commodities are often agricultural goods. Owning commodities as a hedge against inflation is encouraged in a broader portfolio.
