Trading Glossary

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Scalp

To trade for small gains. It normally involves establishing and liquidating a position quickly, usually within the same day.

Scenario analysis

The use of horizon analysis to project bond total returns under different reinvestment rates and future market yields.

Search costs

Costs associated with locating a counterparty to a trade, including explicit costs (such as advertising) and implicit costs (such as the value of time). Related: Information costs

Secondary market

The market where securities are traded after they are initially offered in the primary market.

Securities analysts

Related: Financial analysts

Securitization

The process of creating a passthrough, such as the mortgage pass-through security, by which the pooled assets become standard securities backed by those assets.

Security deposit (initial)

Synonymous with the term margin. A cash amount of funds that must be deposited with the broker for each contract as a guarantee of fulfillment of the futures contact. It is not considered as part payment or purchase. Related: Margin

Security deposit (maintenance)

Related: Maintenance margin security market line (SML). A description of the risk return relationship for individual securities, expressed in a form similar to the capital market line.

Sell hedge

Related: Short hedge

Selling short

A trade in which the investor (working through a broker) borrows a security, sells it, repurchases it at a later time, and then returns it to the party who initially loaned the security. If the price has fallen, the short seller profits. When the security is returned, the investor is said to have "covered the short position."

Sell limit order

Conditional trading order that indicates that a security may be sold at the designated price or higher. Related: Buy limit order

Sell-side analyst

Also called a Wall Street analyst, a financial analyst who works for a brokerage firm and whose recommendations are passed on to the brokerage firm's customers.

Semistrong form efficiency

A form of pricing efficiency where the price of the security fully reflects all public information (including, but not limited to, historical price and trading patterns). Compare weak form efficiency and strong form efficiency.

Serial bonds

Corporate bonds arranged so that specified principal amounts become due on specified dates. Related: Term bonds

Settlement date

Also called the delivery date, the designated date at which the parties to a futures contract must transact.

Settlement Price

A figure determined by the closing range which is used to calculate gains and losses in futures market accounts. Settlement prices are used to determine gains, losses, margin calls, and invoice prices for deliveries. Related: Closing range

Settlement rate

The rate suggested in Financial Accounting Standard Board (FASB) 87 for discounting the obligations of a pension plan. The rate at which the pension benefits could be effectively settled if the pension plan wished to terminate its pension obligation.

Sharpe benchmark

A statistically created benchmark that adjusts for a manager's index-like tendencies.

Sharpe Index

A measure of a portfolio's excess return relative to the total variability of the portfolio. Related: Treynor Index

Short

One who has sold a contract to establish a market position and who has not yet closed out this position through an offsetting purchase; the opposite of a long. Related: Long

Shortfall risk

The risk of falling short of any investment target.

Short hedge

The sale of a futures contract(s) to eliminate or lessen the possible decline in value ownership of an approximately equal amount of the actual financial instrument or physical commodity. Related: Long hedge

Short position

In the cash market, a sale of securities not owned. The securities sold are borrowed. In the futures market, the sale of a futures contract with no offsetting long position. In the options market, the sale of an option with no offsetting long position.

Short selling

Establishing a market position by selling a futures contract.

Short squeeze

A situation in which a lack of supply tends to force prices upward.

Short straddle

A straddle in which one put and one call are sold.

Short-term solvency ratios

Ratios used to judge the adequacy of liquid assets for meeting short-term obligations as they come due, including (1) the current ratio, (2) the acid-test ratio, (3) the inventory turnover ratio, and (4) the accounts receivable turnover ratio.

Simple moving average

The mean, calculated at any time over a past period of fixed length.

Single-index model

Related: Market model

Sinking fund requirement

A condition included in some corporate bond indentures that requires the issuer to retire a specified portion of debt each year. Any principal due at maturity is called the balloon maturity.

Small-firm effect

The tendency of small firms (in terms of total market capitalization) to outperform the stock market (consisting of both large and small firms).

Specialist

On an exchange, the member firm that is designated as the market maker (or dealer for a listed common stock. Only one specialist can be designated for a given stock, but dealers may be specialists for several stocks. In contrast, there can be multiple market makers in the OTC market.

Speculator

One, who attempts to anticipate price changes and, through buying and selling contracts, aims to make profits. A speculator does not use the market in connection with the production, processing, marketing or handling of a product.

Speed

Related: Prepayment speed

Spot markets

Related: Cash markets

Spot month

The nearest delivery month on a futures contract.

Spot price

The current market price of the actual physical commodity. Also called cash price.

Spot rate

The theoretical yield on a zero-coupon Treasury security.

Spot rate curve

The graphical depiction of the relationship between the spot rates and maturity.

Spread

The simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months. Also known as a straddle.

Spread income

Also called margin income, the difference between income and cost. For a depository institution, the difference between the assets it invests in (loans and securities) and the cost of its funds (deposits and other sources).

Spread strategy

A strategy that involves a position in one or more options so that the cost of buying an option is funded entirely or in part by selling another option in the same underlying.

Standard deviation

The square root of the variance. A measure of dispersion of a set of data from their mean.

Standardized value

Also called the normal deviate, the distance of one data point from the mean, divided by the standard deviation of the distribution.

Stated conversion price

At the time of issuance of a convertible security, the price the issuer effectively grants the securityholder to purchase the common stock, equal to the par value of the convertible security divided by the conversion ratio.

Steepening of the yield curve

A change in the yield curve where the spread between the yield on a long-term and short-term Treasury has increased. Compare flattening of the yield curve and butterfly shift.

Step-up bond

A bond that pays a lower coupon rate for an initial period which then increases to a higher coupon rate. Related: Deferred-interest bond, Payment-in-kind bond

Stochastic models

Liability-matching models that assume that the liability payments and the asset cash flows are uncertain. Related: Deterministic models

Stock index option

An option in which the underlying is a common stock index.

Stock market

Also called the equity market, the market for trading equities.

Stock option

An option in which the underlying is the common stock of a corporation.

Stock replacement strategy

A strategy for enhancing a portfolio's return, employed when the futures contract is expensive based on its theoretical price, involving a swap between the futures, Treasury bills portfolio and a stock portfolio.

Stop-limit order

A stop order that designates a price limit. In contrast to the stop order, which becomes a market order if the stop is reached, the stop-limit order becomes a limit order if the stop is reached.

Stop order (or stop)

An order to buy or sell at the market when a definite price is reached, either above (on a buy) or below (on a sell) the price that prevailed when the order was given.

Straddle

Purchase or sale of an equal number of puts and calls with the same terms at the same time. Related: Spread

Straight value

Also called investment value, the value of a convertible security without the conversion option.

Stratified equity indexing

A method of constructing a replicating portfolio in which the stocks in the index are classified into stratum, and each stratum is represented in the portfolio.

Stratified sampling approach to indexing

An approach in which the index is divided into cells, each representing a different characteristic of the index, such as duration or maturity.

Stratified sampling bond indexing

A method of bond indexing that divides the index into cells, each cell representing a different characteristic, and that buys bonds to match those characteristics.

Strike index

For a stock index option, the index value at which the buyer of the option can buy or sell the underlying stock index. The strike index is converted to a dollar value by multiplying by the option's contract multiple. Related: Strike price

Strike price

The price at which an option can be converted by exercise into the underlying futures contract.

Strong form efficiency

Pricing efficiency, where the price of a security reflects all information, whether or not it is publicly available. Related: Weak form efficiency, Semistrong form efficiency

Structured portfolio strategy

A strategy in which a portfolio is designed to achieve the performance of some predetermined liabilities that must be paid out in the future.

Swap reversal

An interest rate swap designed to end a counterparty's role in another interest rate swap, accomplished by counterbalancing the original swap in maturity, reference rate, and notional amount.

Swap sale

Also called a swap assignment, a transaction that ends one counterparty's role in an interest rate swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Swaptions

Options on interest rate swaps. The buyer of a swaption has the right to enter into an interest rate swap agreement by some specified date in the future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer. The writer of the swaption becomes the counterparty to the swap if the buyer exercises.

Swing chart

A swing chart is closely associated with the Gann tool. Gann's main trading philosophy was to trade with a close stop loss and select the most opportune trades in the direction of the main trend. To confirm a trend was in progress, he would look for lower highs and higher lows to form after a major reversal in trend. The method he used to monitor trends and filter out any random market noise was the Swing Chart. Swing charts have multiple purposes: 1) to remove the "noise" from bar charts, thus clearly define a market swing; 2) to define the trend (higher tops / higher bottoms = trend is up); 3) to take the guesswork out of determining points "A", "B" and "C" (they are successive swings", "bottom/top/bottom or top/bottom/top); 4) to show whether the market is expanding, neutral, or contracting; 5) to show how strong the trend is; and 6) to indicate how sustainable the trend is.

Switching

Liquidating an existing position and simultaneously reinstating a position in another futures contract of the same type.

Symmetric cash matching

An extension of cash flow matching that allows for the short-term borrowing of funds to satisfy a liability prior to the liability due date, resulting in a reduction in the cost of funding liabilities.

Systematic risk

Also called undiversifiable risk or market risk, the minimum level of risk that can be obtained for a portfolio by means of diversification across a large number of randomly chosen assets. Related: Unsystematic risk