Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
There are two main types of stock:
• Common
• Preferred
Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends.
Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated
Bond
A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.
Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.
Private Equity
Equity capital that is not quoted on a public exchange.
Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.
Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.
Futures
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price.
Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange.
Some futures contracts may call for physical delivery of the asset, while others are settled in cash.
Option
A financial derivative that represents a contract sold by one party (option writer) to another party (option holder).
The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).
• Call options give the option to buy at certain price, so the buyer would want the stock to go up.
• Put options give the option to sell at a certain price, so the buyer would want the stock to go down.
Swap
Traditionally, the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed
Forward Contract
A cash market transaction in which delivery of the commodity is deferred until after the contract has been made.
Although the delivery is made in the future, the price is determined on the initial trade date.
Derivative
A security whose price is dependent upon or derived from one or more underlying assets.
The derivative itself is merely a contract between two or more parties.
Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.
Futures contracts, forward contracts, options and swaps are the most common types of derivatives
Credit Derivative
Privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk.
Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private investors or governments).
Forex - FX
The market in which currencies are traded.
There is no central marketplace for currency exchange; trade is conducted over the counter.
The forex is the largest market in the world in terms of the total cash value traded, and any person, firm or country may participate in this market.
Repurchase Agreement - Repo
A form of short-term borrowing for dealers in government securities.
The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.
For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.
A repo is equivalent to a cash transaction combined with a forward contract. The cash transaction results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower
Cash Trading
A method of buying or selling securities by providing the capital needed to fund the transaction without relying on the use of margin.
Cash trading is achieved by using a cash account, which is a type of brokerage account that requires the investor to pay for securities within two days from when the purchase is made.
A trade of a security or a derivative where settlement occurs on the same trading day. This is fairly unusual; most contracts are settled between one and three days later. Generally speaking, cash contracts are most common in the last week of the calendar year when many trades must be settled sooner to guarantee tax advantages for one or both parties.
