Financial Trading Platforms Glossary
85 terms defined. An authoritative reference for Financial Trading Platforms.
#
403(b) Account
A tax-advantaged retirement plan similar to a 401(k) but available to employees of public schools, nonprofits, and certain government entities. Contributions are pre-tax and grow tax-deferred until withdrawal.
529 Plan
A tax-advantaged education savings account where earnings grow tax-free and qualified withdrawals for education expenses are not taxed. Recent rule changes also allow limited rollovers to a Roth IRA.
A
All-or-None (AON)
An order qualifier instructing the broker to fill the entire order or none of it, though unlike FOK it does not require immediate execution. AON prevents partial fills on large block orders.
American-Style Option
An options contract that can be exercised at any time up to and including the expiration date. Most US equity options are American-style, giving holders more flexibility than European-style contracts.
Assignment (Options)
The process by which an option seller is obligated to fulfil the contract terms when the buyer exercises. Call sellers must deliver shares; put sellers must purchase shares at the strike price upon assignment.
At-the-Money (ATM)
An option whose strike price is equal or very close to the current price of the underlying asset. ATM options carry the most extrinsic value and the highest gamma sensitivity relative to moneyness.
B
Bear Put Spread
Buying a higher-strike put and selling a lower-strike put with the same expiration to reduce cost while betting on a decline. Maximum profit equals the spread width minus net premium paid.
Bid-Ask Spread
The difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask). Tighter spreads mean more liquid markets and lower trading costs. Blue-chip stocks may have 1-cent spreads; illiquid penny stocks can have 5-10% spreads.
Bracket Order
A multi-leg order that simultaneously places a profit target and a stop-loss around an entry. When one leg is filled the other is automatically cancelled, managing both upside and downside in a single order.
Bull Call Spread
Buying a lower-strike call and selling a higher-strike call with the same expiration to reduce cost while maintaining directional exposure. Profit is capped at the spread width minus net premium paid.
C
Calendar Spread
Selling a near-term option and buying a further-dated option at the same strike to profit from faster time decay in the short leg. Calendar spreads benefit from rising implied volatility and a stable underlying price.
Call Option
A contract giving the buyer the right, but not the obligation, to purchase 100 shares of an underlying asset at a specified strike price before or on the expiration date. Calls profit when the underlying rises.
Cash Account
A brokerage account where all transactions must be paid in full with the investor's own cash. Cash accounts cannot use borrowed funds and are not subject to margin calls or pattern day trader rules.
Cash-Secured Put
Selling a put option while holding enough cash to buy 100 shares at the strike price if assigned. It generates premium income and is used by investors willing to purchase the stock at a target lower price.
Collar Strategy
Combining a protective put and a covered call on the same stock to limit both upside and downside. The premium received from the call partially or fully offsets the cost of the put.
Cost Basis
The original value of an investment used to calculate capital gains or losses for tax purposes, including the purchase price plus commissions and adjustments. Accurate cost basis tracking is essential for tax reporting.
Covered Call
A strategy where an investor holding 100 shares sells a call option against that position to collect premium income. The upside is capped at the strike price, but the premium reduces the effective cost basis.
Custodial UTMA Account
A Uniform Transfers to Minors Act account held by a custodian on behalf of a minor. The minor takes full control at the age of majority, and the account has no contribution limits but offers no special tax advantages.
D
Delta
An options Greek measuring how much an option's price changes for a $1 move in the underlying asset. A delta of 0.50 means the option gains $0.50 for every $1 the underlying rises, and it also approximates the probability of expiring in-the-money.
Diagonal Spread
A combination of a calendar spread and a vertical spread using different strikes and expiration dates. Diagonal spreads offer more flexibility than pure calendar spreads and are often used in covered call rolling strategies.
Dividend Reinvestment (DRIP)
Automatically using cash dividends to purchase additional fractional or full shares of the same security. DRIPs compound returns over time and may be offered commission-free through the broker or directly from the company.
E
European-Style Option
An options contract that can only be exercised on the expiration date itself, not before. Many index options and most ETF options in Europe use European-style settlement rules.
Exercise (Options)
The act of invoking the right embedded in an options contract to buy or sell the underlying asset at the strike price. Most retail options are closed before expiration rather than exercised.
Expiration Date
The last day on which an options contract can be exercised or traded. After expiration, unexercised options become worthless, making time management a critical component of options trading.
Extended-Hours Order
A trade placed during pre-market or after-hours sessions outside regular exchange trading hours. Extended-hours orders typically use limit instructions and carry risks of lower liquidity and wider spreads.
Extrinsic Value
The portion of an option's premium that exceeds its intrinsic value, representing time value and implied volatility. Extrinsic value decays as expiration approaches, a phenomenon known as theta decay.
F
FDIC Insurance at Brokerages
FDIC coverage applies to cash sweep programs that deposit uninvested brokerage cash into FDIC-insured bank accounts. Standard coverage is $250,000 per depositor per bank, not per brokerage account.
Fill or Kill (FOK)
An order instruction requiring the entire order to be executed immediately in full or cancelled entirely. FOK orders prevent partial fills and are used when a specific quantity at a specific price is essential.
Fractional Shares
Portions of a full share that allow investors to buy high-priced stocks with small amounts of capital. Fractional shares are available at many online brokers and are ideal for dollar-cost averaging into expensive equities.
G
Gamma
An options Greek measuring the rate of change of delta for a $1 move in the underlying. High gamma options experience large delta swings around the strike price, particularly near expiration.
Good Till Cancelled (GTC)
An order that remains active until it is either executed or manually cancelled by the trader. GTC orders are useful for setting entry or exit points at prices not currently available in the market.
H
I
Immediate or Cancel (IOC)
An order that must be executed immediately, but unlike FOK, partial fills are acceptable. Any portion not filled at once is cancelled, making it useful for rapidly moving markets.
In-the-Money (ITM)
An option with intrinsic value: a call is ITM when the underlying price exceeds the strike; a put is ITM when the underlying is below the strike. ITM options cost more but have a higher probability of profitable exercise.
Inherited IRA
An IRA transferred to a beneficiary after the original owner's death. Non-spouse beneficiaries are generally required to deplete the account within 10 years under the SECURE Act rules.
Initial Margin
The minimum deposit required to open a leveraged position, set by Regulation T at 50% for equities. Some brokers and futures markets set higher initial margin requirements based on volatility.
Intrinsic Value (Options)
The amount by which an option is in-the-money, calculated as the difference between the underlying price and the strike price. An out-of-the-money option has zero intrinsic value.
Iron Butterfly
A neutral options strategy using ATM short options and OTM long options to create a defined-risk position with a narrower profit zone than an iron condor. Maximum profit occurs when the underlying expires exactly at the short strike.
Iron Condor
A neutral options strategy combining a bull put spread and a bear call spread to profit when the underlying stays within a defined range. Maximum profit is the net premium received; maximum loss is the spread width minus premium.
L
Leverage
Using borrowed money to increase position size beyond your cash balance. 2:1 margin means $10K buys $20K of stock. Amplifies both gains and losses. Options provide implicit leverage — a $3 call option can control $100+ of stock. Most retail traders lose money with leverage.
Limit Order
An order to buy or sell at a specific price or better. Buy limits execute at the limit price or lower; sell limits execute at the limit price or higher. No guarantee of execution — the market may never reach your price. Preferred by most traders over market orders for better price control.
Liquidity
How easily an asset can be bought or sold without significantly affecting its price. High-liquidity stocks (Apple, Microsoft) trade millions of shares daily with tight spreads. Low-liquidity stocks may have wide spreads and large price jumps on small orders.
Long Straddle
Buying both a call and a put at the same strike and expiration to profit from a large move in either direction. The trade is profitable if the underlying moves more than the combined premium paid.
Long Strangle
Buying an OTM call and an OTM put with the same expiration to profit from a large directional move at a lower cost than a straddle. The underlying must move more than the strangle cost to be profitable.
Lot Selection Methods
The strategy for identifying which tax lot to sell when you hold multiple purchases of the same security, including FIFO, LIFO, highest-cost, and specific identification. The method chosen can significantly impact tax liability.
M
MACD (Moving Average Convergence Divergence)
A trend-following momentum indicator showing the relationship between two moving averages (typically 12-day and 26-day EMAs). Signal line crossovers and histogram changes identify trend shifts. One of the most popular technical indicators across all timeframes.
Maintenance Margin
The minimum account equity a margin investor must maintain to keep their positions open. If equity falls below this threshold, a margin call is triggered and the broker may liquidate holdings.
Margin Account
A brokerage account that allows investors to borrow funds from the broker to purchase securities. Borrowing on margin amplifies both gains and losses and requires meeting maintenance margin requirements.
Margin Call
A broker's demand for additional funds when your account equity falls below the maintenance margin requirement (typically 25-30% of positions). If you can't deposit funds, the broker liquidates your positions at market prices — often at the worst possible time.
Mark-to-Market (MTM)
The daily revaluation of open positions at current market prices to reflect unrealised gains or losses. Futures traders settle MTM daily; it can also refer to an IRS tax election available to active traders.
Market Order
An order to buy or sell immediately at the best available price. Guaranteed execution but not guaranteed price — in fast markets or illiquid stocks, you may get significant slippage. Best used for highly liquid stocks where the spread is minimal.
Moving Average (MA)
A smoothed line calculated by averaging closing prices over a set period. The 50-day and 200-day MAs are widely watched. When the 50-day crosses above the 200-day (golden cross), it signals bullish momentum. MAs lag price action — they confirm trends rather than predict reversals.
O
One-Cancels-Other (OCO)
A linked pair of orders where the execution of one immediately cancels the other. OCO orders are used to set both a take-profit and a stop-loss simultaneously without manual monitoring.
Option Premium
The price paid by the buyer to the seller for an options contract. The premium reflects intrinsic value plus time value and is influenced by volatility, time to expiration, interest rates, and the underlying's price.
Out-of-the-Money (OTM)
An option with no intrinsic value: a call is OTM when the strike exceeds the underlying price; a put is OTM when the strike is below. OTM options are cheaper but require a larger move to become profitable.
P
Pattern Day Trader (PDT)
A regulatory classification under FINRA rules applied to anyone who executes four or more day trades within five business days in a margin account. PDT-classified traders must maintain a minimum equity of $25,000.
Pattern Day Trader Rule
A FINRA rule requiring traders who execute four or more day trades in five business days to maintain a minimum margin account balance of $25,000. Accounts below this threshold are restricted from further day trading.
Protective Put
Buying a put option on a stock you already own to limit downside risk. The put acts as insurance, capping maximum loss at the strike price minus the premium paid, while leaving upside unlimited.
Put Option
A contract giving the buyer the right, but not the obligation, to sell 100 shares of an underlying asset at a specified strike price before or on the expiration date. Puts profit when the underlying declines.
R
Regulation T (Reg T)
A Federal Reserve rule governing the amount of credit brokers may extend to customers for purchasing securities. Under Reg T, investors must deposit at least 50% of the purchase price of marginable securities.
Relative Strength Index (RSI)
A momentum oscillator ranging 0-100. RSI above 70 suggests overbought conditions; below 30 suggests oversold. Developed by J. Welles Wilder. Most effective as a confirmation tool alongside other indicators. Divergence between RSI and price often signals trend reversals.
Rho
An options Greek measuring the sensitivity of an option's price to a 1% change in interest rates. Rho has the least practical impact of the major Greeks for short-dated options but matters more for LEAPS.
Risk Management
The practice of controlling potential losses through position sizing, stop-losses, diversification, and portfolio allocation. The most important trading skill. Common rule: never risk more than 1-2% of your account on a single trade. Surviving drawdowns is more important than maximizing gains.
Roth IRA
An Individual Retirement Account funded with after-tax dollars where qualified withdrawals in retirement are completely tax-free. Roth IRAs have income limits and annual contribution caps set by the IRS.
S
Securities Lending
The temporary transfer of securities from a lender to a borrower in exchange for collateral and a fee. Brokers engage in securities lending on behalf of clients to generate income, which may be shared with the account holder.
SEP-IRA
A Simplified Employee Pension IRA designed for self-employed individuals and small business owners, allowing much higher contribution limits than a standard IRA. Contributions are tax-deductible and grow tax-deferred.
Settlement (T+1)
The standard settlement cycle for US equity trades where cash and securities change hands one business day after the trade date. The move from T+2 to T+1 in 2024 reduced counterparty risk.
Short Selling
Borrowing shares and selling them with the intention of repurchasing at a lower price to profit from a decline. Short sellers face unlimited theoretical losses and are subject to margin requirements and recall risk.
Short Straddle
Selling both a call and a put at the same strike and expiration to collect maximum premium. Profit is limited to the premium received and the risk is theoretically unlimited if the stock moves sharply.
SIMPLE IRA
A Savings Incentive Match Plan for Employees IRA available to small businesses with 100 or fewer employees. It allows employee salary deferrals and requires employer matching, with lower administrative costs than a 401(k).
SIPC Protection
The Securities Investor Protection Corporation insures brokerage accounts up to $500,000 (including $250,000 in cash) if a member broker-dealer fails. SIPC does not protect against investment losses.
Slippage
The difference between the expected price of a trade and the actual execution price. Occurs with market orders in fast-moving or illiquid markets. Can be positive (better price) or negative (worse price). Minimized by using limit orders and trading liquid securities.
Solo 401(k)
A retirement plan for self-employed individuals with no full-time employees other than a spouse. It allows both employee salary deferrals and employer profit-sharing contributions, enabling high annual savings limits.
Stop-Limit Order
A two-part order that triggers a limit order once a stop price is reached. Unlike a plain stop-loss, execution is not guaranteed if the market gaps through the limit price, which can leave a position open.
Stop-Loss Order
An order that triggers a market sell when a stock drops to a specified price, limiting potential losses. A stop at $45 on a $50 stock means it sells (at market) if the price touches $45. Stop-limit orders add a price floor but risk not executing in a fast decline.
Strike Price
The predetermined price at which an option holder can buy (call) or sell (put) the underlying asset. The relationship between the strike price and the current market price determines whether an option is in, at, or out of the money.
Support and Resistance
Price levels where buying (support) or selling (resistance) pressure historically concentrates. Support acts as a floor; resistance acts as a ceiling. When broken, support becomes resistance and vice versa. Key levels are identified through previous highs/lows, round numbers, and moving averages.
T
Taxable Brokerage Account
A standard investment account with no contribution limits or tax advantages. Gains and dividends are taxable in the year realised, but the account offers full flexibility with no withdrawal restrictions.
Time Decay (Theta)
The rate at which an option loses extrinsic value as expiration approaches, all else being equal. Theta accelerates as expiration nears and benefits option sellers while eroding value for option buyers.
Time Value
The component of an option's premium attributable to the remaining time until expiration. The longer the time remaining, the greater the chance the option moves in the money, so time value is always positive for live options.
Traditional IRA
An Individual Retirement Account funded with pre-tax dollars, allowing tax-deferred growth until withdrawal. Contributions may be tax-deductible depending on income and workplace retirement plan participation.
Trailing Stop
A dynamic stop-loss that follows the price upward by a set amount or percentage but doesn't move down. A 5% trailing stop on a stock that rises from $100 to $120 would trigger at $114. Locks in profits while allowing for continued upside.
V
Vega
An options Greek measuring the sensitivity of an option's price to a 1% change in implied volatility. Vega is highest for at-the-money options with longer durations, making them most affected by volatility swings.
Volume
The number of shares or contracts traded in a given period. High volume confirms price movements — a breakout on heavy volume is more significant than one on light volume. Average daily volume helps assess liquidity. Unusual volume spikes often precede major price moves.