Definition of Trade

Trade

A verbal (or electronic) transaction involving one party buying a security from another party. Once a
trade is consummated, it is considered "done" or final. Settlement occurs 1-5 business days later.

Balance of trade

Net flow of goods (exports minus imports) between countries.

Basket trades

Related: Program trades.

Block trade

A large trading order, defined on the New York Stock Exchange as an order that consists of
10,000 shares of a given stock or a total market value of $200,000 or more.

Counter trade

The exchange of goods for other goods rather than for cash; barter.

Flat trades

1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid,
accrued interest.
2) Any security that trades without accrued interest or at a price that includes accrued
interest is said to trade flat.

Floor trader

A member who generally trades only for his own account, for an account controlled by him or
who has such a trade made for him. Also referred to as a "local".

Forward trade

A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon the trade date.

Informationless trades

trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.

Information-motivated trades

trades in which an investor believes he or she possesses pertinent
information not currently reflected in the stock's price.

Posttrade benchmarks

Prices after the decision to trade.

Pre-trade benchmarks

Prices occurring before or at the decision to trade.

Program trades

Also called basket trades, orders requiring the execution of trades in a large number of
different stocks at as near the same time as possible. Related: block trade

Publicly traded assets

Assets that can be traded in a public market, such as the stock market.

Registered trader

A member of the exchange who executes frequent trades for his or her own account.

Reversing trade

Entering the opposite side of a currently held futures position to close out the position.

Spot trade

The purchase and sale of a foreign currency, commodity, or other item for immediate delivery.

Terms of trade

The weighted average of a nation's export prices relative to its import prices.

Thinly traded

Infrequently traded.

Trade acceptance

Written demand that has been accepted by an industrial company to pay a given sum at a future date.
Related: banker's acceptance.

Trade credit

Credit granted by a firm to another firm for the purchase of goods or services.

Trade date

In an interest rate swap, the date that the counterparties commit to the swap. Also, the date on
which a trade occurs. trades generally settle (are paid for) 1-5 business days after a trade date. With stocks,
settlement is generally 3 business days after the trade.

Trade debt

Accounts payable.

Trade draft

A draft addressed to a commercial enterprise. See:draft.

Trade on top of

trade at a narrow or no spread in basis points relative to some other bond yield, usually
Treasury bonds.

Trade house

A firm which deals in actual commodities.

Traders

Persons who take positions in securities and their derivatives with the objective of making profits.
traders can make markets by trading the flow. When they do that, their objective is to earn the bid/ask spread.
traders can also be of the sort who take proprietary positions whereby they seek to profit from the directional
movement of prices or spread positions.

Uptick trade

Related:Tick-test rules

North American Free Trade Agreement (NAFTA)

an agreement among Canada, Mexico, and the United States establishing the North American Free trade Zone, with a resulting reduction in trade barriers

World Trade Organization (WTO)

the arbiter of global trade that was created in 1995 under the General Agreement on Tariffs and trade; each signatory country has one
vote in trade disputes

trade-off theory

Debt levels are chosen to balance interest tax shields against the costs of financial distress.

Balance of Merchandise Trade

The difference between exports and imports of goods.

Balance of Trade

See balance of merchandise trade.

Free Trade

The absence of any government restrictions, such as tariffs or quotas, on imports or exports.

Terms of Trade

The quantity of imports that can be obtained for a unit of exports, measured by the ratio of an export price index to an import price index.

Trade Deficit

Deficit on the balance of merchandise trade.

Trade Loading

A term used for channel stuffing in the domestic tobacco industry.

Adjustable rate preferred stock (ARPS)

Publicly traded issues that may be collateralized by mortgages and MBSs.

Agency basis

A means of compensating the broker of a program trade solely on the basis of commission
established through bids submitted by various brokerage firms. agency incentive arrangement. A means of
compensating the broker of a program trade using benchmark prices for issues to be traded in determining
commissions or fees.

American Stock Exchange (AMEX)

The second-largest stock exchange in the United States. It trades
mostly in small-to medium-sized companies.

American-style option

An option contract that can be exercised at any time between the date of purchase and
the expiration date. Most exchange-traded options are American style.

Average (across-day) measures

An estimation of price that uses the average or representative price of a
large number of trades.

Away

A trade, quote, or market that does not originate with the dealer in question, e.g., "the bid is 98-10
away from me."

Back office

Brokerage house clerical operations that support, but do not include, the trading of stocks and
other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory
compliance.
Back-end loan fund
A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from
4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a
designated time, such as one year. The commission decreases the longer the investor holds the shares. The
formal name for the back-end load is the contingent deferred sales charge, or CDSC.

Bane

In the words of Warren Buffet, Bill Bane Sr., is, "a great American and one of the last real traders
around. I like to call him 'Salvo.'" His wife, Carol, is a huge NASCAR fan, and in her own words "delights in
pulling the legs off central bankers." Cooper Bane, son number two, is a thriving artiste who specializes in
making art that is much better than the stuff most folks are doing. Jackson, son number three, is a world
renowned master chef and plans on opening a restaurant. Bill Bane Jr., son number one, plans on giving Mr.
Monroe Trout a run for his money. [Bill Bane, Jr. helped Professor Harvey put the hypertextual glossary
together while an MBA student at Duke University.]

Banker's acceptance

A short-term credit investment created by a non-financial firm and guaranteed by a
bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These
instruments have been a popular investment for money market funds. They are commonly used in
international transactions.

Bear raid

A situation in which large traders sell positions with the intention of driving prices down.

Beggar-thy-neighbor

An international trade policy of competitive devaluations and increased protective
barriers where one country seeks to gain at the expense of its trading partners.

Beggar-thy-neighbor devaluation

A devaluation that is designed to cheapen a nation's currency and thereby
increase its exports at other countries' expense and reduce imports. Such devaluations often lead to trade wars.

Big Board

A nickname for the New York Stock Exchange. Also known as The Exchange. More than 2,000
common and preferred stocks are traded. Founded in 1792, the NYSE is the oldest exchange in the United
States, and the largest. It is located on Wall Street in New York City.

Block house

Brokerage firms that help to find potential buyers or sellers of large block trades.

Book

A banker or trader's positions.

Chinese wall

Communication barrier between financiers (investment bankers) and traders. This barrier is
erected to prevent the sharing of inside information that bankers are likely to have.

Clear

A trade is carried out by the seller delivering securities and the buyer delivering funds in proper form.
A trade that does not clear is said to fail.

Clearing member

A member firm of a clearing house. Each clearing member must also be a member of the
exchange. Not all members of the exchange, however, are members of the clearing organization. All trades of
a non-clearing member must be registered with, and eventually settled through, a clearing member.

Closed-end fund

An investment company that sells shares like any other corporation and usually does not
redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or
below its net asset value. Related: Open-end fund.

Commission

The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or
their dollar value. In 1975, deregulation led to the creation of discount brokers, who charge lower
commissions than full service brokers. Full service brokers offer advice and usually have a full staff of
analysts who follow specific industries. Discount brokers simply execute a client's order -- and usually do not
offer an opinion on a stock. Also known as a round-turn.

Commitment

A trader is said to have a commitment when he assumes the obligation to accept or make
delivery on a futures contract. Related: Open interest

Common stock equivalent

A convertible security that is traded like an equity issue because the optioned
common stock is trading high.

Confirmation

he written statement that follows any "trade" in the securities markets. Confirmation is issued
immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

Conversion factors

Rules set by the Chicago Board of trade for determining the invoice price of each
acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Counterparty Party

on the other side of a trade or transaction.

Customs union

An agreement by two or more countries to erect a common external tariff and to abolish
restrictions on trade among members.

Dealer market

A market where traders specializing in particular commodities buy and sell assets for their
own accounts.

Don't know (DK, Dked)

"Don't know the trade." A Street expression used whenever one party lacks
knowledge of a trade or receives conflicting instructions from the other party.

Dow Jones industrial average

This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.

Embedded option

An option that is part of the structure of a bond that provides either the bondholder or
issuer the right to take some action against the other party, as opposed to a bare option, which trades
separately from any underlying security.

Exchange

The marketplace in which shares, options and futures on stocks, bonds, commodities and indices
are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange
(AMEX) and the National Association of Securities Dealers (NASDAQ)

The Exchange

A nickname for the New York stock exchange. Also known as the Big Board. More than
2,000 common and preferred stocks are traded. The exchange is the oldest in the United States, founded in
1792, and the largest. It is located on Wall Street in New York City.

Execution

The process of completing an order to buy or sell securities. Once a trade is executed, it is reported
by a Confirmation Report; settlement (payment and transfer of ownership) occurs in the U.S. between 1
(mutual funds) and 5 (stocks) days after an order is executed. Settlement times for exchange listed stocks are
in the process of being reduced to three days in the U. S.

Execution costs

The difference between the execution price of a security and the price that would have
existed in the absence of a trade, which can be further divided into market impact costs and market timing
costs.

Export-Import Bank (Ex-Im Bank)

The U.S. federal government agency that extends trade credits to U.S.
companies to facilitate the financing of U.S. exports.

Fail

A trade is said to fail if on settlement date either the seller fails to deliver securities in proper form or the
buyer fails to deliver funds in proper form.

FCIA

Foreign Credit Insurance Association. A private U.S. consortium of insurance companies that offers
trade credit insurance to U.S. exporters in conjunction with the U.S. Export-Import Bank.

Financial analysts

Also called securities analysts and investment analysts, professionals who analyze
financial statements, interview corporate executives, and attend trade shows, in order to write reports
recommending either purchasing, selling, or holding various stocks.

Financial intermediaries

Institutions that provide the market function of matching borrowers and lenders or
traders.

Fixed asset

Long-lived property owned by a firm that is used by a firm in the production of its income.
Tangible fixed assets include real estate, plant, and equipment. Intangible fixed assets include patents,
trademarks, and customer recognition.

Fixed-dates

In the Euromarket the standard periods for which Euros are traded (1 month out to a year out) are
referred to as the fixed dates.

48-hour rule

The requirement that all pool information, as specified under the PSA Uniform Practices, in a
TBA transaction be communicated by the seller to the buyer before 3 p.m. EST on the business day 48-hours
prior to the agreed upon trade date.

Forward contract

A cash market transaction in which delivery of the commodity is deferred until after the
contract has been made. It is not standardized and is not traded on organized exchanges. Although the
delivery is made in the future, the price is determined at the initial trade date.

Forward delivery

A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon on the trade date.

Forward discount

A currency trades at a forward discount when its forward price is lower than its spot price.

Forward Fed funds

Fed funds traded for future delivery.

Forward market

A market in which participants agree to trade some commodity, security, or foreign
exchange at a fixed price for future delivery.

Forward premium

A currency trades at a forward premium when its forward price is higher than its spot price.

Futures commission merchant

A firm or person engaged in soliciting or accepting and handling orders for
the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection
with such solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades
or contracts. The FCM must be licensed by the CFTC. Related: commission house , omnibus account

Futures contract

Agreement to buy or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures
market. A futures contract differs from an option because an option is the right to buy or sell, whereas a
futures contract is the promise to actually make a transaction. A future is part of a class of securities called
derivatives, so named because such securities derive their value from the worth of an underlying investment.

Handle

The whole-dollar price of a bid or offer is referred to as the handle (ie. if a security is quoted at
101.10 bid and 101.11 offered, 101 is the handle). traders are assumed to know the handle.

Hybrid security

A convertible security whose optioned common stock is trading in a middle range, causing
the convertible security to trade with the characteristics of both a fixed-income security and a common stock
instrument.

Insider information

Relevant information about a company that has not yet been made public. It is illegal for
holders of this information to make trades based on it, however received.

Intangible asset

A legal claim to some future benefit, typically a claim to future cash. Goodwill, intellectual
property, patents, copyrights, and trademarks are examples of intangible assets.

International Depository Receipt (IDR)

A receipt issued by a bank as evidence of ownership of one or more
shares of the underlying stock of a foreign corporation that the bank holds in trust. The advantage of the IDR
structure is that the corporation does not have to comply with all the regulatory issuing requirements of the
foreign country where the stock is to be traded. The U.S. version of the IDR is the American Depository
Receipt (ADR).

Investment trust

A closed-end fund regulated by the Investment Company Act of 1940. These funds have a
fixed number of shares which are traded on the secondary markets similarly to corporate stocks. The market
price may exceed the net asset value per share, in which case it is considered at a "premium." When the
market price falls below the NAV/share, it is at a "discount." Many closed-end funds are of a specialized
nature, with the portfolio representing a particular industry, country, etc. These funds are usually listed on US
and foreign exchanges.

J-curve

Theory that says a country's trade deficit will initially worsen after its currency depreciates because
higher prices on foreign imports will more than offset the reduced volume of imports in the short-run.

Listed stocks

Stocks that are traded on an exchange.

Lock-up CDs

CDs that are issued with the tacit understanding that the buyer will not trade the certificate.
Quite often, the issuing bank will insist that the certificate be safekept by it to ensure that the understanding is
honored by the buyer.

London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.

Long position

An options position where a person has executed one or more option trades where the net
result is that they are an "owner" or holder of options (i. e. the number of contracts bought exceeds the
number of contracts sold).
Occurs when an individual owns securities. An owner of 1,000 shares of stock is said to be "Long the stock."
Related: Short position

Listed stocks

Stocks that are traded on an exchange.

London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.

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