Trading terms glossary

• — Bid — the highest price anyone is currently willing to pay. Ask (or offer) — the lowest price anyone will sell at.
• — Spread — the gap between bid and ask. You cross it on entry and again on exit, so it is a cost you pay twice.
• — Order book — the resting buy and sell orders at each price level. Deeper books absorb larger orders with less price impact.
• — Slippage — the difference between the price you expected and the average price you got, caused by your order consuming several price levels.
• — Market order — executes immediately at whatever the book offers. Limit order — executes only at your price or better, and may not execute at all.
• — Stop order — becomes a market order once a trigger price is reached. Trailing stop — a stop whose trigger follows the price at a fixed distance.
• — Circuit breaker — a limit on how far a price may move in one session. Margin Call uses ±25% per stock per day.

• — Earnings per share (EPS) — profit divided by shares outstanding.
• — Price/earnings ratio (P/E) — price divided by EPS. What the market pays per unit of current profit.
• — Multiple — the P/E, used as a thing that itself moves. "Multiple expansion" means the price rose without earnings rising.
• — Market capitalisation — price times shares outstanding. What the whole company is priced at.
• — Fair value — what a model says a company is worth from its fundamentals, as opposed to what it currently trades at.
• — Dividend yield — annual dividend divided by price.
• — Book value — assets minus liabilities. Used to value companies that are not currently profitable.

• — Beta — how much a stock moves relative to the market. A beta of 1.4 means it tends to move 40% more than the index, in both directions.
• — Volatility — the size of price fluctuations. Clusters in time: calm periods and violent ones, rather than a constant level.
• — VIX — an index of expected market volatility. Rises faster than it falls, and spikes in crises.
• — Correlation — the degree to which two holdings move together. Rises during crises, which is when diversification stops helping.
• — Drawdown — the fall from a peak to a subsequent trough. The number that actually measures how bad it got.
• — Margin — borrowed money used to hold a position larger than your cash. Amplifies both directions.
• — Margin call — a demand for additional collateral when a leveraged position moves against you. Also the name of this game.
• — Distance to default — a measure of how close a company is to being unable to pay its debts, from its asset volatility and leverage.

• — Call — the right to buy at a set price before expiry. Put — the right to sell at a set price before expiry.
• — Strike — the price the contract is written at. Expiry — the date the right ends.
• — In the money — the contract would be worth something if exercised now. Out of the money — it would not.
• — Intrinsic value — what the contract is worth if exercised immediately. Time value — everything above that.
• — Implied volatility — the volatility figure that makes the pricing model produce the option's actual traded price. High means expensive.
• — Delta — price change per point of underlying move. Gamma — the rate at which delta changes.
• — Theta — value lost per day to time passing. Vega — price change per point of implied volatility.
• — Volatility crush — the collapse in implied volatility after an uncertain event resolves, most reliably after earnings.

• — Short selling — borrowing shares, selling them, and buying them back later to return. Profits if the price falls.
• — Borrow rate — the annualised cost of borrowing the shares, accrued while the position is held.
• — Short interest — the number of shares currently sold short.
• — Days to cover — short interest divided by average daily volume. The real measure of squeeze risk.
• — Short squeeze — forced buying by shorts closing positions, which raises the price, which forces more closing.

• — Yield curve — interest rates plotted against maturity. Its shape encodes what the market expects policy to do.
• — Credit spread — the extra yield a corporate bond pays over a government bond of the same maturity. Widens in recessions.
• — Taylor rule — a formula relating the policy interest rate to the inflation and output gaps.
• — Phillips curve — the relationship between unemployment and inflation.
• — Okun's law — the relationship between unemployment and output growth.
• — Quantitative easing — central bank asset purchases, which lower long-term rates and raise multiples.
• — Business cycle — the alternation of expansion and recession. Margin Call draws cycle lengths from a Weibull distribution, so expansions have realistic duration dependence.

• — IPO — the first sale of a company's shares to the public.
• — Lockup — a period after an IPO during which insiders may not sell. 180 days in Margin Call.
• — Proxy fight — an attempt to win shareholder votes to change a company's board or direction. Requires a 5% stake here.
• — Ex-dividend date — the date from which buying the share no longer entitles you to the next dividend.
• — Stock split — dividing existing shares into more shares. Changes nothing about the company's value.
• — Series A / B / C — successive rounds of venture funding, at progressively later stages.
• — Runway — how many months of cash a company has left at its current burn rate.

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