Traders Glossary

Explore, learn, and discover all trading-related terms here in our comprehensive glossary.

Aggressive Big Money

Aggressive Big Money is evidenced by a sharp price jump – a gap up or down – showing that large players have forced the price to move.

American Stock Exchange (AMEX)

Securities Exchange that handles approximately 20% of all securities trades within the US.

American-style option

An option contract that can be exercised at any time before the expiration date. Stock Options are American Style.

Arbitrage

Where the simultaneous purchase and disposal of a combination of financial instruments is such that a guaranteed profit is made automatically.

Ask

The price that you buy at and the price that market makers and floor brokers are willing to sell at. The Ask stands for what the market makers and floor traders ask you to pay for the stock (or options or other instrument).

At the Opening Order

An order that specifies execution at the market opening or else it is cancelled.

ATM (At the Money)

Where the option exercise price is the same as the asset price.

Automatic Exercise

The automatic exercise of an ITM (in the money) option by the clearing firm at expiration

Backspread

A spread where more options (calls or puts) are bought than sold. (the opposite of a Ratio Spread).

Bear Call Ladder

A strategy using calls where the trader sells a lower strike call, buys a higher strike call and another higher strike call.

Bear Call Spread

A bearish net credit strategy using calls where the trader buys a higher strike call and sells a lower strike call. The higher strike call will be cheaper, hence the net credit. Bear Call spreads have limited risk and reward and are more profitable as the underlying asset price falls.

Bear Put Ladder

A spread using puts where the trader sells a lower strike put, buys a higher strike put and another higher strike put.

Bear Put Spread

A net debit spread only using puts where the trader buys a higher strike put and sells a lower strike put. The higher strike put will be more expensive, hence the net debit. Bear Put spreads have limited risk and reward and are more profitable as the underlying asset falls.

Bid

The price the trader sells at and the price that market makers and floor traders are willing to buy at. [the Bid stands for the price at which the market maker will bid for your stock (or options, or other instrument)]

Bid – Ask Spread

The difference between the bid and asked prices. Generally you will buy at the Ask and Sell at the Bid. The Ask is always higher than the Bid.

Blow off Top

A large rise in price followed by a quick drop. Often accompanied with high volume. Usually a technical indicator for the end of a bullish trend.

Bond

A debt financial instrument used by Governments and corporate entities in order to raise capital. The bond obliges the organization to pay its holders a fixed rate of return (coupon) and repay the principal of the debt at maturity. These bonds are traded (the CBOT is one of the major Bond Exchanges) and their values are directly correlated with interest rates and interest rate speculation by the markets. The lower interest rates are projected to be, the more valuable the bond will be.

Breakeven

The point(s) at which a risk profile of a trade equals zero.

Breakout

Where a price chart emerges upwards beyond previous price resistance.

Broker

A person who charges commission for executing a transaction (buy or sell) order.