Financial Market Terms
Learn essential financial market terms with simple definitions and practical examples covering trading, stocks, forex, cryptocurrencies, commodities, and economic indicators.
Financial Glossary
300 resultsNet Income
Quick Definition
Net income is the profit or loss remaining after a company's expenses and taxes are deducted from revenue.
Full Definition
Net income is commonly called the bottom line of the income statement. It is an accounting measure and can differ from cash generated because some recorded revenue and expenses do not involve cash in the same period.
Example
If revenue is $5 million and all expenses and taxes total $4.2 million, net income is $800,000.
Also Known As
Node
Quick Definition
A node is a computer or software instance that participates in a blockchain network.
Full Definition
Depending on its type, a node may store blockchain data, verify transactions and blocks, and relay information to peers. Full nodes independently enforce the network's consensus rules rather than trusting another server for every answer. Not every node mines blocks or acts as a validator.
Example
Running a full node lets the user verify incoming Bitcoin payments against Bitcoin's rules.
Also Known As
Non-Custodial Wallet
Quick Definition
A non-custodial wallet gives the user direct control of the private keys.
Full Definition
The wallet provider normally cannot approve transactions or restore access without the user's recovery information. This reduces dependence on a custodian but puts key security, backups, and transaction checking on the user. A software interface can still contain bugs or connect to malicious applications.
Example
With a non-custodial wallet, the user signed the withdrawal without asking an exchange to process it.
Also Known As
Non-Deliverable Forward
NDFQuick Definition
A non-deliverable forward is a currency forward settled by a net cash payment instead of exchanging the restricted currency.
Full Definition
The parties agree on a forward rate and later compare it with a specified fixing rate. Only the resulting gain or loss is paid, commonly in a widely traded currency such as the US dollar. NDFs are often used for currencies whose delivery is limited by capital controls or market rules.
Example
A dollar-settled NDF can hedge exposure to a currency without delivering that currency at maturity.
Also Known As
Non-Fungible Token
NFTQuick Definition
A non-fungible token is a blockchain token with a distinct identity that is not interchangeable one-for-one with every other token.
Full Definition
An NFT can represent a collectible, membership, game item, certificate, or another unique record. The blockchain records the token and its owner, while the related media may be stored elsewhere. Buying an NFT does not automatically transfer copyright or other legal rights unless the terms say so.
Example
Two NFTs from the same collection can have different identifiers and market prices.
Also Known As
Nonfarm Payrolls
NFPQuick Definition
Nonfarm payrolls measure the monthly change in US payroll jobs in covered nonfarm industries.
Full Definition
The figure comes from the US Bureau of Labor Statistics establishment survey and excludes farm workers along with several other categories defined by the survey. It is released with information such as average hourly earnings and the unemployment rate, although those figures can come from different surveys. Markets often react to the result, revisions, and how it compares with expectations.
Example
An NFP increase of 180,000 indicates that covered US employers reported about 180,000 more payroll jobs than in the previous month before revisions.
Also Known As
Notional Value
NotionalQuick Definition
Notional value is the reference amount of underlying exposure represented by a derivative or leveraged position.
Full Definition
For many futures, it is calculated as contract price multiplied by contract size, with any product-specific adjustments. Notional value can be much larger than the margin posted and therefore helps reveal leverage. It is not the same as market value or the maximum possible loss.
Example
A futures price of 4,000 with a multiplier of 50 represents 200,000 of notional value.
Also Known As
Open Interest
OIQuick Definition
Open interest is the total number of derivative contracts that remain open and have not been offset, exercised, delivered, or expired.
Full Definition
A new position between a buyer and seller can increase open interest, while closing an existing contract can reduce it. It differs from trading volume, which counts contracts traded during a period even if they are later closed. Traders use open interest as one measure of participation and available market depth, but it does not by itself predict price direction.
Example
Ten thousand contracts traded today can coexist with open interest of only six thousand contracts.
Also Known As
Open-High-Low-Close
OHLCQuick Definition
Open-high-low-close is a four-price summary of market activity during a selected time period.
Full Definition
The open is the first recorded price, high and low are the period's extremes, and close is the final recorded price under the data provider's rules. OHLC values depend on the chosen time frame, trading session, venue, and price source.
Example
A daily OHLC record might be open $100, high $105, low $98, and close $103.
Also Known As
Option Assignment
Quick Definition
Option assignment is the process that requires an option writer to meet the obligation created when a holder exercises.
Full Definition
A short call writer may be required to sell or settle the underlying exposure, while a short put writer may be required to buy or settle it. Assignment can occur before expiration for exercisable American-style options and is handled through clearing and broker allocation procedures. Writers should understand assignment risk even when an option still has time remaining.
Example
A trader short one put is assigned and must buy the contract's specified quantity at the strike price.
Also Known As
Option Delta
DeltaQuick Definition
Option delta estimates how much an option's price changes for a small change in the underlying price, with other inputs held constant.
Full Definition
Call deltas are generally positive and put deltas are generally negative. Delta is also used as a hedge ratio, but it changes as price, time, and volatility change. Treating delta as an exact probability of expiring in the money is only an approximation and depends on model assumptions.
Example
A call with delta 0.60 may gain about 0.60 when the underlying rises by 1, before other factors change.
Also Known As
Option Exercise
Quick Definition
Option exercise is the holder's use of the contractual right to buy or sell the underlying interest at the strike price.
Full Definition
Exercising a call invokes the right to buy, while exercising a put invokes the right to sell or receive the specified settlement. American-style options can generally be exercised before expiration, while European-style options can generally be exercised only at expiration. Exercise rules, deadlines, automatic exercise, and settlement differ by product and broker.
Example
The holder exercises an in-the-money call and receives the resulting stock position under the contract terms.
Also Known As
Option Gamma
GammaQuick Definition
Option gamma estimates how much delta changes for a small change in the underlying price.
Full Definition
Gamma measures the curvature of an option's relationship with its underlying rather than its immediate directional exposure. Long standard calls and puts have positive gamma, while short options have negative gamma. Gamma is often greatest near the money and close to expiration, which can make hedges change rapidly.
Example
With delta 0.50 and gamma 0.08, a 1-unit rise in the underlying may increase delta to roughly 0.58, all else equal.
Also Known As
Option Premium
Quick Definition
An option premium is the price paid by the buyer and received by the seller for an options contract.
Full Definition
Premium reflects factors including the underlying price, strike, time to expiration, expected volatility, interest rates, and any expected cash flows such as dividends. It can be separated conceptually into intrinsic value and time value. Quoted premiums may need to be multiplied by the contract multiplier to find the total amount paid.
Example
A quoted premium of 2.50 on an equity option with a 100-share multiplier costs 250 before fees.
Also Known As
Option Rho
RhoQuick Definition
Option rho estimates how much an option's price changes when the relevant interest rate changes.
Full Definition
Standard call values generally rise and put values generally fall when interest rates rise, with other inputs fixed, though product details matter. Rho tends to matter more for longer-dated options than short-dated ones. Currency options involve interest rates for both currencies, so their rate exposure is more complex.
Example
A call with rho 0.20 may gain about 0.20 when the modeled interest rate rises by one percentage point, all else equal.
Also Known As
Option Theta
ThetaQuick Definition
Option theta estimates the change in an option's value from the passage of time, with other pricing inputs held constant.
Full Definition
Theta is commonly expressed as the amount of value lost over one day by a long option. Time decay is not linear and often accelerates near expiration for at-the-money options. Actual price changes may differ because the underlying price and implied volatility rarely remain unchanged.
Example
A theta of -0.05 suggests the option may lose about 0.05 of value over one day if all other inputs stay fixed.
Also Known As
Option Vega
VegaQuick Definition
Option vega estimates how much an option's price changes when implied volatility changes.
Full Definition
Vega is usually quoted for a one-percentage-point change in implied volatility, although platform conventions should be checked. Long calls and puts generally have positive vega, while short options generally have negative vega. Vega is often larger for longer-dated options because more future uncertainty remains.
Example
An option with vega 0.12 may gain about 0.12 if implied volatility rises from 20 to 21 percent, all else equal.
Also Known As
Options Contract
Quick Definition
An options contract gives its buyer a right, but not an obligation, to buy or sell an underlying interest under stated terms.
Full Definition
The buyer pays a premium for the right, while the seller accepts an obligation if the option is exercised and assigned. Each option specifies the underlying, call or put type, strike price, expiration, contract multiplier, and exercise style. Options can limit a buyer's loss to the premium, but some short-option positions can have very large losses.
Example
An investor buys an option to obtain defined price exposure without buying the underlying asset immediately.
Also Known As
Order Book
Quick Definition
An order book is an organized record of current buy and sell orders at different prices.
Full Definition
It shows the displayed quantity available at bid and offer price levels and changes as orders are entered, executed, or canceled. The visible book may not include hidden orders or liquidity available on other trading venues.
Example
An order book might show 500 shares bid at $20.00 and 700 shares offered at $20.05.
Also Known As
Out of the Money
OTMQuick Definition
An option is out of the money when exercising it immediately would produce no intrinsic value.
Full Definition
A call is out of the money when the underlying is below its strike, while a put is out of the money when the underlying is above its strike. Its premium consists of time value rather than intrinsic value. It can still gain value before expiration if the underlying, volatility, or other pricing inputs change.
Example
A 60-strike call is out of the money when the underlying trades at 54.
Also Known As
Over-the-Counter Market
OTCQuick Definition
An over-the-counter market is a dealer or electronic network where securities trade away from a centralized exchange order book.
Full Definition
OTC trading is common for many bonds and also exists for stocks that are not exchange-listed. Transparency, liquidity, quotation quality, and regulatory requirements can differ by security and venue, so OTC does not by itself describe one level of risk.
Example
A dealer may quote a corporate bond directly to a customer in the OTC market.
Also Known As
Personal Consumption Expenditures Price Index
PCE Price IndexQuick Definition
The PCE Price Index measures prices paid for goods and services consumed by people in the United States.
Full Definition
The index covers spending by households and certain purchases made on their behalf. Its weights can reflect changes in consumer behavior, giving it a different composition from CPI. The Federal Reserve closely follows PCE inflation when assessing progress toward price stability.
Example
If consumers shift toward a cheaper substitute, the PCE index can reflect that change in spending patterns.
Also Known As
Phishing
Quick Definition
Crypto phishing is an attempt to trick a user into revealing secrets or approving a harmful transaction.
Full Definition
Attackers may copy a wallet or exchange website, impersonate support, or send urgent links through email and social media. The goal may be to steal a password, private key, seed phrase, or token approval. Users should verify domains and transaction details and should never give a recovery phrase to anyone.
Example
A fake airdrop page asked for the seed phrase, which was a clear sign of phishing.
Also Known As
Physical Delivery
Quick Definition
Physical delivery is settlement through delivery and acceptance of the contract's specified underlying commodity or asset.
Full Definition
The contract defines acceptable grades, quantities, locations, notices, and delivery dates. Most financial traders close or roll deliverable futures before delivery, while commercial firms may use the delivery process. Holding a contract too long can create operational and financial obligations that a trader did not intend.
Example
A short deliverable gold future held into the delivery process may require delivery under exchange-approved procedures.
Also Known As
Pip
PIPQuick Definition
A pip is a standard small unit used to describe a change in a foreign exchange rate.
Full Definition
For many currency pairs, one pip is 0.0001, while for many Japanese yen pairs it is 0.01. The money value of a pip depends on the pair, trade size, current rate, and account currency. Some platforms quote an extra decimal place, often called a fractional pip or pipette.
Example
If EUR/USD rises from 1.1050 to 1.1065, it has moved 15 pips.
Also Known As
Pipette
Quick Definition
A pipette is a fractional pip, usually one-tenth of a pip, displayed as an extra decimal place in a foreign exchange quote.
Full Definition
For a pair where one pip is 0.0001, one pipette is commonly 0.00001. For many yen pairs, where one pip is 0.01, a pipette is commonly 0.001. Fractional pricing gives finer quote and execution precision but does not change the position's underlying risk.
Example
A move in EUR/USD from 1.10000 to 1.10001 is one pipette, or one-tenth of a pip.
Also Known As
Policy Interest Rate
Policy RateQuick Definition
A policy interest rate is a central-bank-controlled or targeted rate used to guide short-term financial conditions.
Full Definition
The exact rate differs by monetary system and may be a lending rate, deposit rate, target rate, or target range. Changes influence money-market rates and can pass through to loans, deposits, bond yields, asset prices, and exchange rates. Markets often move on both the decision and the guidance about future decisions.
Example
A surprise 0.25 percentage-point policy-rate increase can cause the country's currency and short-term yields to rise.
Also Known As
Portfolio
Quick Definition
A portfolio is the complete collection of investments held by a person, fund, or organization.
Full Definition
A portfolio may contain several asset classes, accounts, currencies, and investment strategies. Its overall risk depends not only on each holding but also on position sizes and how the holdings move in relation to one another.
Example
An investor's portfolio may contain stock ETFs, government bonds, and cash.
Also Known As
Position Sizing
Quick Definition
Position sizing is the process of choosing how much of an asset or contract to trade based on risk and account constraints.
Full Definition
A common method starts with the maximum acceptable loss and divides it by the loss per unit at the planned exit. Volatility, liquidity, leverage, correlation with other positions, and gap risk can justify a smaller size. Position sizing cannot guarantee that a stop price will be filled, so actual losses can exceed the estimate.
Example
If the planned risk is 100 and each unit would lose 2 at the stop, the initial calculation suggests no more than 50 units.
Also Known As
Preferred Stock
Quick Definition
Preferred stock is a class of shares that usually has priority over common stock for dividends and liquidation payments.
Full Definition
Preferred shares often pay a stated dividend and generally rank ahead of common shares if company assets are distributed. They commonly have limited or no voting rights, and their prices can react to changes in interest rates much like bond prices.
Example
A preferred share with a $2 annual dividend may pay that amount before any dividend is paid to common shareholders.