Finance Glossary

ALM

The Asset Liability Manager’s core responsponsibility is to manage the bank’s portfolio of assets and liabilities, in order to maximise profits and liquidity for the bank.

backtesting

Backtesting is the general method for seeing how well a strategy or model works. Backtesting assesses the viability of a trading strategy by discovering how it would play out using historical data. If backtesting works, traders and analysts may have the confidence to employ the model going forward.

BBG

Bloomberg

bearish

You think that the market will go down in the future.

bid

The maximum buying price that a buyer is willing to pay for a security.

blotter

The universal blotter is designed to provide functional aggregation from multiple systems to achieve a centralised order management and position tracking. The details of a trade will include such things as the time, price, order size and if its a buy or sell.

BOS

The Bank Of Singapore is the wholly-owned private banking arm of OCBC Bank, with branches in countries such as Hong Kong, Dubai and Manila. In Malaysia, it servies its client through BOS Wealth Management Malaysia.

BWIC

Bids Wanted In Competition are a part of trading communication messages.

bullish

You think that the market will go up as opposed to being bearish.

carry

A currency’s yield is called “carry”. It is the amount of interest you earn or pay when you own or short a currency. For more details, see the section on Currency Carry Trade.

CCY

Currency Pair price

CFETS

The China Foreign Exchange Trade System is the interbank trading and foreign exchange division of China’s central bank. CFETS was founded on 18 Apr 1994 and is run by the People’s Bank of China (PBC). Its core functions including: providing trades, trading information, benchmarks and training facilities for interbank lending, bonds and FX markets.

counterparty

This is another term for market maker. It is the other party that participates in a financial trade.

CTAs

Commodity Trading Advisors along with systematic and model funds are hedge funds that make trades and allocate capital based on computer programs, algorithms, pattern recognition, following correlation trends or disequilibrium in the market.

DCI

Data, Connectivity and Indicies is one of 3 branches of SGX.

DOB

Depth Of Book refers to the robustness of an order book, itself a record of buy and sell orders that are waiting to be placed. DOB is often displayed as a ladder, with each run being a price and a corresponding order - buy on the left and sell on the right. This visualisation helps traders ascertain liquidity levels for specific equities or investment products. The greater the quantity, the more robust the order book.

ECN

The Electronic Communications Networks is a trading platform or electronic broker that hosts bids and offers and transmits them to users worldwide. The main ECNs are EBS and Reuters.

ESP

Executible Streaming Price

FICC

Fixed Income, Currencies & Commodities is one of 3 branches of SGX. It contributes to 16% of total revenue for FY2020. It can be classified further into Listing and Corporate Actions and others. Derivatives for Currencies and Commodities can be further classified into Trading and Clearing Treasury.

FIX

The Financial Information eXchange protocol, formed in 1991, connects the global ecosystem of venues, asset managers, banks/brokers, vendors and regulators by standarising the communication among participants, handling pre trade, trade, post trade to market data and settlement. It is a non-proprietary, free and open standard, comprising a series of messaging specifications used in trade communication. These include STP, IOI to allocations and confirmations.

GDP

The Gross domestic Product is the market value of all final goods and services produced in a country during the course of the year. This measure excludes two sets of goods which on first glance you might think it should have

• Purchases of goods that have been produced in the past, such as paintings, or a house built 10 years back are not counted in the GDP.

• Nor are the purchases of stocks or bonds.

Neither of these are included in the GDP because these categories do not include goods and services produced during the course of the year.

GT

Global Treasury

Hedging

Heding in forex is a simple way of protecting one’s assets / position in a currency pair from significant losses by reducing the amount you can loose if something unexpected occurs. It is typically a form of short-term protection from the market that is volatile. One strategy for hedging is by taking the opposite position in the same currency pair, while another strategy is to buy forex options.

HFT

High Frequency Trading systems attempt to profit from small movements and variabtions in markets.

IOI

Indications of Interest for trading is a type of FIX communication message.

ladder

The trading ladder is a view of the order book from the lowest price to the highest price and what volume of trade is occuring at these prices. It allows you to see where heavy trading activity occurs and where unmatched orders are waiting in the market. By monitoring the ladder, traders can see where prices are heading in the short term.

long

This is the position where you own something, betting that its price will rise.

LP

Liquidity Providers usually act as professional market makers who make exchange rate quotations to others.

market maker

A market maker acts as a buyer or seller of a given asset class or exchange rate. They are usually on the other side of a trade we deal with. Market makers take on liqudity and market risk when you trade with them. Liquidity risk lies with the fact that only a fixed amount of currency is available in the market for a given price. Market risk comes from the fact that the price may go against the market maker after the trade.

MAS

Monetary Authority of Singapore.

MLC

Murex Limit Controller

MVWAP

Moving Volume Weighted Average Priace is a form of VWAP.

NASDAQ

National Association of Securities Dealers Automated Quotation System and the NYSE are the best know examples of secondary markets where securities are traded.

NDF

See the section on Non Deliverable Forwards.

Nominal

An amount that is not adjusted for inflation.

Notional Value

This Notional Value is used to describe derivative contracts for options, futures and currency markets. The notional value is the total underlying amount of a derivative trade. The notional value of derivative contracts are much higher than the market value due to leveraging. \(Notional\ Value = Contract\ Size * Underlying\ Price\).

offer / ask

The minimum selling price that a seller is willing to take for a security.

ODA

Orders managed through the OMS

O/N

Overnight

OMS

Order Management System.

OTC

An Over The Counter market is a decentralized market in which marekt participants trade stocks, commodities, currencies and any other instruments directly between two partites without a central exchange or broker. OTC markets do not have physical locations; instead, trading is conducted electonically. This is very different from an auction market system.

pip

The smallest normal trading increment in a currency, i.e., the last decimal point amount for that currency. Since most currencies are priced to 4 decimal points, this for most pairs is 0.0001. Traders often use pips to reference gains or losses.

price

(价格 jia⁴ ge²) An asset price is usually quoted as a pair of bid/offer, e.g., the AUDSGD price can be 0.9830/0.9831 (bid/offer) where a Singapore buyer bids for the Australian dollar and is willing to buy at 0.9830, while an Australian dollar seller is asking for 0.9831 SGD.

quant

This is a short form for Quantitative Analyst, a person who understands the increasingly complex mathematical models behind securities and are able to blend mathematics, finance and computer skills effectively.

roll

The roll (aka rollover or tom/nex for tomorrow/next) is the net amount of interests you pay or receive each day for holding spot positions overnight. It is the difference in interest earned on the currency you are long versus the interest you must pay on that currency when you are short. Interest is calculated daily for spot exchange positions. You can look up the roll points on your currency on your trading platform or on Bloomberg.

SAFE

The State Administration of Foreign Exchange, is the forex regulator in China. It carries out activities such as management of foreign exchange reserves and ensuring the safety and liquidity of assets.

security

A security (also called a financial instrument) is a claim on the issuer’s future income or asset.

SGX

Singapore Stock Exchange. Its three branches are Equities (72%), FICC (16%) and DCI (12%).

SL

Stop Loss

sharp ratio

This ratio describes how much excess return you receive for the extra volatility you endure for holding a riskier asset.

short

This is a position where you sell something you don’t own, expecting it to fall.

S/N

Spot Next is T+2+1 as T+2 is the standard spot agreement, except for USDCAD which is T+1.

spread

The difference between the bid and the offer price. For example, if the AUDSGD price is 0.9830/0.9831, the spread here is just 1 pip of 0.0001 SGD. You cross a spread if you have to pay money to the market, i.e. paying slight more than you really need to. This can happens if you are willing to buy at a price slightly higher than the offer price or sell slightly lower than the bid price. This rarely happens, e.g. one ECN has a 23/26 spread (bid/offer) while another ECN has a 27/30 spread. Then, someone will sell at 27 and buy at 26 for a risk free one-pip profit. The size of the bid-ask spread of a security is also a measure of the liquidity of the market and the size of the transaction cost.

STP

Straight-through processing is an automated process done purely through electronic transfers with no manual intervention. Commonly used in payment processing and securities trading.

FX swap

This is an agreement to exchange currency between two foreign parties. The agreement consists of swapping the principal and interest payments on a loan made in one currency for the principal and interest payments of a loan of equal value in another currency. The purpose of engaging in a currency swap is usually to procure loans in foreign currrency at more favourable interest rates compared to if borrowing directly in the foreign market.

SWF

Sovereign Wealth Funds operated by governments help to manage currency reserves and are actively traded in large amounts just like the central bank.

TA

Treasury Advisor

taker

When buying securities, if you cross a spread to buy, you are considered a market taker, as opposed to a market maker.

TCA

Transaction Cost Analysis is “the study of trade prices to determine whether the trades were arranged at favourable prices - low prices for purchases and high prices for sales.” - Financial Times. It provides parameters such as fill ratio, rejection rate, quote frequency, price deviation, etc.

TIF

Time In Force for a particular order or for what period the order is valid for.

Tick

Ticks are the bars in the volume histogram chart that shows the volume of trade done against time.

T/N

Tomorrow/Next. See roll

TOB

The highest bid and the lowest ask are referred to as the Top Of Book. They signal the prevalant market and the bid and offer price that would be needed to get an order fulfilled.

TOMS

Trade Order Management System

TP

Take Profit

TWAP

Time Weighted Average Price. See VWAP below for details.

VWAP

Volume Weighted Average Price, the TWAP and MVWAP are trading tools that are frequently used by short-term traders and algorithms that look at prices one day at a time, taking into account the trading volume which provides a much more accurate snapshot of the average price. It uses a time frame (tick chart, 1 minute, 5 minute, etc. ), calculated typical price for the first period and all periods in the day by multiplying the typical prive with the volume for that period till the end of the day, then getting the cumulative TPV divided by the cumulative trade volume.

currency yield

An investment’s annual income (interest or dividends), divided by the current price of the security.