Reference
Trading and investing terms, explained.
Understand the language of real world assets, perpetual futures, prediction markets and options. Find clear explanations of what each term means and why it matters when you trade or invest.
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Advanced Analysis and Market Positioning
- 0DTE OptionsStart here0DTE options are option contracts on their final trading or expiration day, meaning they have approximately zero days remaining until expiration.
- At the AskAt the ask describes a transaction executed at or around the displayed ask price.
- At the BidAt the bid describes a transaction executed at or around the displayed bid price.
- Block TradeStart hereA block trade is a large transaction involving a substantial quantity of securities or contracts, typically handled according to the relevant market's block trading procedures.
- Charm ExposureCharm exposure relates to how Delta changes as time passes, all else equal.
- Closing FlowClosing flow refers to options activity believed to be reducing or eliminating existing positions.
- DealerStart hereAn options dealer is a professional market participant that facilitates options trading and manages the exposures created by its positions.
- Dealer GammaStart hereDealer Gamma refers to the estimated Gamma exposure held by options dealers as a result of their options positions.
- Dealer PositioningStart hereDealer positioning refers to estimates of the options exposures held by dealers and the potential hedging activity associated with those exposures.
- Delta HedgingStart hereDelta hedging is the process of offsetting some or all of a position's directional Delta exposure using the underlying asset or another instrument.
- Dispersion TradingDispersion trading is a relative value approach involving volatility exposure to an index and its individual components, often seeking to exploit differences in how correlation and volatility are priced.
- Dynamic HedgingStart hereDynamic hedging is the process of repeatedly adjusting a hedge as the exposures of a position change.
- Gamma ExposureStart hereGamma exposure describes how strongly Delta is expected to change as the underlying price moves. At the market level, Gamma exposure metrics attempt to estimate the aggregate Gamma associated with outstanding options positions, often using assumptions about who holds which side of those positions.
- Gamma FlipStart hereA Gamma flip is an estimated underlying price level where a model of aggregate or dealer Gamma exposure changes sign.
- Gamma HedgingStart hereGamma hedging refers to managing the changes in Delta associated with Gamma, typically as part of a broader dynamic hedging process.
- Gamma Risk Near ExpirationStart hereGamma risk near expiration refers to the potential for an option's Delta to change very rapidly as the underlying moves when little time remains, particularly around relevant strikes.
- Gamma SqueezeStart hereA Gamma squeeze describes a market dynamic in which options related hedging can contribute to accelerating price movement as the underlying moves and option Delta changes.
- Gamma WallStart hereGamma wall is a market analysis term commonly used for a strike or price region associated with unusually large estimated Gamma exposure or options positioning.
- Implied CorrelationImplied correlation is an estimate of the correlation among components of a basket or index inferred from option market pricing under a particular framework.
- Implied Probability DistributionAn implied probability distribution is an estimate of the distribution of future underlying prices inferred from option prices under a particular framework and set of assumptions.
- Max PainMax Pain is an options market calculation intended to identify the underlying price at which aggregate option holder intrinsic payouts at expiration would be minimized under the methodology used.
- Negative Gamma EnvironmentStart hereA negative Gamma environment generally refers to a market regime in which estimated dealer positioning implies negative aggregate Gamma under the model being used.
- Opening FlowOpening flow refers to options activity believed to be establishing new positions rather than closing existing ones.
- Options FlowStart hereOptions flow refers to trading activity across the options market and the analysis of transactions to understand where significant activity may be occurring. Traders may examine: contract, strike, expiration, call or put, trade size, premium, volume, open interest, execution price, and surrounding market conditions.
- Options Flow ScannerAn options flow scanner is a tool that filters and highlights options transactions according to criteria such as size, premium, volume, strike, expiration or execution characteristics.
- Options Open Interest by ExpirationOpen interest by expiration shows how outstanding option contracts are distributed across expiration dates.
- Options Open Interest by StrikeStart hereOpen interest by strike shows how outstanding option contracts are distributed across strike prices.
- Options PositioningStart hereOptions positioning refers to the distribution and characteristics of outstanding options exposure across strikes, expirations, calls, puts and other dimensions.
- Options Premium FlowOptions premium flow refers to the dollar value of option transactions being analyzed across contracts or groups of contracts.
- Positive Gamma EnvironmentStart hereA positive Gamma environment generally refers to a market regime in which estimated dealer positioning implies positive aggregate Gamma under the model being used.
- Put Call Open Interest RatioThe put call open interest ratio compares outstanding put open interest with outstanding call open interest.
- Put Call RatioStart hereThe put call ratio compares put activity with call activity over a specified market, security or period. Depending on the dataset, it may be calculated using: volume or open interest.
- Put Call Volume RatioThe put call volume ratio compares put trading volume with call trading volume during a specified period.
- Risk Neutral ProbabilityStart hereRisk neutral probability is a probability concept used in derivative pricing under which expected discounted asset values are evaluated within a risk neutral pricing framework.
- Risk ReversalStart hereRisk reversal can refer to an options structure combining a call and put with different strikes, and it is also used as a volatility market measure comparing implied volatility between corresponding calls and puts.
- Skew AnalysisStart hereSkew analysis examines differences in implied volatility across strikes and how those differences change over time.
- Sweep OrderStart hereA sweep order is an order designed to seek execution rapidly across available liquidity, potentially accessing multiple venues or price levels.
- Trade ClassificationTrade classification is the process of estimating characteristics of an options transaction, such as whether buying or selling pressure appears to have initiated the trade.
- Unusual Options ActivityStart hereUnusual options activity describes options trading that appears significantly different from the contract's normal or expected activity. This might involve unusually high: volume, premium, trade size, or activity relative to existing open interest.
- Vanna ExposureVanna exposure describes sensitivity associated with the interaction between changes in implied volatility and Delta, or equivalently the interaction between underlying price and Vega depending on convention.
- Volatility ArbitrageVolatility arbitrage is a broad term for strategies seeking to exploit perceived differences between the volatility embedded in derivative prices and the volatility a trader expects or attempts to realise through hedging.
Advanced Prediction Market Analysis
- ArbitrageStart hereArbitrage is a strategy that seeks to exploit pricing inconsistencies between economically related positions in a way designed to reduce or eliminate exposure to the underlying directional outcome.
- Arbitrage RiskStart hereArbitrage risk is the possibility that a trade believed to lock in a pricing discrepancy fails to behave as expected because the positions are not perfectly equivalent or cannot be executed and settled as assumed.
- Brier ScoreStart hereThe Brier Score is a method for measuring the accuracy of probabilistic forecasts by comparing predicted probabilities with actual binary outcomes. For a single binary forecast: Brier Score = (Forecast Probability − Outcome)² where the outcome is: 1 if the event occurs and 0 if it does not. Lower scores indicate better performance.
- Conditional MarketStart hereA conditional market is a prediction market whose outcome or interpretation depends on another specified event or condition.
- Cross Market AnalysisStart hereCross market analysis is the process of comparing multiple related prediction markets to understand whether their probabilities are logically and economically consistent.
- Cross Market ArbitrageCross market arbitrage attempts to exploit a pricing difference between related prediction contracts or venues.
- Cumulative ProbabilityCumulative probability is the probability that an outcome falls at or below, or at or above, a specified threshold depending on how the event is defined.
- Event DependencyStart hereEvent dependency exists when the occurrence of one event changes the probability of another event.
- Forecast AccuracyStart hereForecast accuracy describes how well predictions correspond with eventual outcomes over time.
- Forecast HorizonStart hereForecast horizon is the amount of time between making a forecast and the event or deadline being forecast.
- Forecast Track RecordStart hereA forecast track record is a historical record of probability estimates and their eventual outcomes.
- Independent EventsStart hereIndependent events are events where the occurrence of one does not change the probability of the other.
- Joint ProbabilityStart hereJoint probability is the probability that two or more specified events occur together. It is often written conceptually as: P(A and B)
- Market ConsistencyStart hereMarket consistency describes whether prices across a group of related prediction markets form a logically coherent set of probabilities.
- Prediction Market ArbitrageStart herePrediction market arbitrage is the attempt to exploit inconsistent prices between prediction contracts whose economic outcomes are sufficiently related.
- Probability BucketA probability bucket groups forecasts with similar probability estimates so their performance can be evaluated together. For example: 50% to 59% 60% to 69% 70% to 79% 80% to 89%
- Probability ConsistencyStart hereProbability consistency describes whether probabilities across related outcomes obey the logical relationships implied by their definitions.
- Probability DistributionStart hereA probability distribution describes how probability is allocated across a range of possible outcomes.
- Probability SumStart hereProbability sum is the combined probability assigned to a set of outcomes.
- Probability TreeA probability tree is a structured way of mapping possible sequences of events and the probabilities associated with each path.
- Relative MispricingStart hereRelative mispricing occurs when the price of one prediction contract appears inconsistent with the price of another related contract.
- Relative ValueStart hereRelative value is the attractiveness of one market or contract compared with another related market or contract.
- Scenario AnalysisStart hereScenario analysis evaluates several plausible future situations and considers how each would affect the probability of an outcome.
- Sensitivity AnalysisSensitivity analysis examines how much a probability estimate changes when important assumptions are changed.
- Threshold MarketStart hereA threshold market is a prediction market asking whether a measurable value will be above, below, reach or otherwise satisfy a specified level according to defined rules. Examples could involve: an asset price, an inflation reading, an interest rate, a company metric, or another measurable variable.
- Time to ResolutionStart hereTime to resolution is the remaining period before a prediction market is expected to reach its final outcome under its rules.
Analysis
- ConfluenceStart hereConfluence occurs when several independent pieces of analysis point toward the same market area or trading idea.
- Multi Timeframe AnalysisStart hereMulti timeframe analysis is the process of examining a market across more than one chart timeframe to understand broader structure and shorter term trading conditions.
- Technical ConfluenceStart hereTechnical confluence describes a situation where several different forms of technical analysis identify the same general area as potentially important.
- TimeframeStart hereA timeframe is the period represented by each candle, bar or unit of price data on a chart. Examples include one minute, one hour, four hour, daily and weekly charts.
- Trading SetupStart hereA trading setup is a predefined combination of market conditions that a trader looks for before considering a trade.
Compliance and Regulation
- Accredited InvestorAn accredited investor is an investor who meets specific legal criteria under the rules of a particular jurisdiction. Depending on the jurisdiction, those criteria may relate to factors such as income, net worth, professional qualifications or institutional status.
- Anti Money Laundering (AML)Start hereAnti Money Laundering, usually shortened to AML, refers to laws, controls and procedures designed to prevent financial systems from being used to disguise or move proceeds of crime and to address related financial crime risks. AML frameworks can include customer due diligence, transaction monitoring, record keeping and reporting requirements.
- ComplianceStart hereCompliance is the process of operating in accordance with applicable laws, regulations, rules and internal requirements. In RWA markets, this can involve investor verification, financial crime controls, disclosures, transfer rules, custody requirements and reporting obligations.
- CustodianStart hereA custodian is an organization responsible for safeguarding assets on behalf of clients or investment structures. Depending on the asset, custody may involve securities, cash, physical assets, digital assets or the credentials used to control blockchain based assets.
- Customer Due Diligence (CDD)Customer Due Diligence, usually shortened to CDD, refers to processes used to understand and assess a customer as part of a financial relationship. It commonly includes identifying and verifying the customer and, where required, understanding relevant ownership, purpose and risk information.
- DisclosureStart hereDisclosure is the provision of information that investors or other market participants need or are legally entitled to receive about an investment, issuer or transaction. Depending on the product, this can include financial information, risks, fees, conflicts, ownership structures and investment terms.
- Identity VerificationIdentity verification is the process of checking that a person or organization is who they claim to be. Depending on the situation, this may involve identity documents, business records, electronic verification systems or other approved methods.
- Investor EligibilityInvestor eligibility refers to the requirements a person or organization must satisfy before being allowed to participate in a particular investment. Requirements can depend on jurisdiction, investor classification, residency, the type of asset and how the investment is offered.
- Know Your Business (KYB)Know Your Business, usually shortened to KYB, refers to processes used to verify a business or other legal entity before entering into a financial relationship with it. This can include checking the entity's registration, ownership, controlling persons and other relevant information.
- Know Your Customer (KYC)Start hereKnow Your Customer, usually shortened to KYC, refers to processes financial businesses use to identify and verify their customers. This commonly involves collecting information such as a person's identity and other information required under the applicable compliance framework.
- Permissioned MarketStart hereA permissioned market is a market in which participation is restricted to users or institutions that meet specified requirements. Participants may need to complete identity, compliance or investor eligibility checks before they are allowed to trade or hold particular assets.
- ProspectusA prospectus is a formal disclosure document providing information about an investment offering, issuer and relevant risks. Whether a prospectus is required, and what it must contain, depends on the type of offering and applicable securities laws.
- Qualified CustodianA qualified custodian is a custodian that meets particular legal or regulatory requirements under an applicable jurisdiction. Which institutions qualify, and for which assets or activities, depends on the relevant regulatory framework.
- Qualified InvestorQualified investor is a regulatory classification used in some jurisdictions for investors who meet specified eligibility requirements. The exact definition and consequences of being classified as a qualified investor depend on the applicable legal framework.
- RegulatorStart hereA regulator is a public authority or other legally empowered body responsible for overseeing particular markets, institutions or financial activities. Its powers and responsibilities depend on the jurisdiction and regulatory framework.
- Regulatory JurisdictionStart hereRegulatory jurisdiction refers to the legal and regulatory authority that applies to a financial activity, entity, product or transaction. An RWA structure may involve several jurisdictions at the same time.
- Regulatory LicenseStart hereA regulatory license is an authorization issued by a regulatory authority that allows an organization to conduct specified regulated activities, subject to the conditions of that authorization. Different financial activities may require different licenses or permissions.
- Regulatory SandboxA regulatory sandbox is a framework through which eligible businesses can test innovative financial products, services or technologies under defined conditions and regulatory oversight. The structure and purpose of sandboxes vary between jurisdictions.
- Sanctions ScreeningSanctions screening is the process of checking customers, entities or transactions against applicable sanctions requirements and restrictions. The exact obligations depend on the jurisdictions and regulated parties involved.
- Securities LawStart hereSecurities law is the body of laws and regulations governing the issuance, offering, sale, trading and other activities involving securities. The exact rules, definitions and regulatory requirements vary between jurisdictions.
- Transfer AgentA transfer agent is an entity that performs record keeping and administrative functions relating to ownership and transfers of certain securities. Its responsibilities can include maintaining ownership records and processing changes in ownership, depending on the market and regulatory framework.
- WhitelistingStart hereWhitelisting is the process of approving specific users, accounts or blockchain addresses before allowing them to perform certain actions. In RWA markets, a wallet may need to be whitelisted before it can receive or transfer a regulated token.
Custody and Asset Administration
- Asset AdministrationAsset administration refers to the operational work required to maintain an investment or portfolio after it has been created. This can include record keeping, processing income and payments, maintaining investor information, valuations and other administrative functions depending on the asset.
- Asset ManagerStart hereAn asset manager is a person or organization responsible for managing investments according to a particular strategy or mandate. The manager may decide which assets to buy, hold or sell and how a portfolio should be managed within the rules of the investment structure.
- Asset SegregationStart hereAsset segregation refers to keeping client or investment assets separately identified from the assets of the company holding or administering them. The exact legal and operational arrangements vary depending on the asset, custodian and jurisdiction.
- Asset ServicerAn asset servicer is an organization that performs operational and administrative functions connected to financial assets. Depending on the asset, those functions can include processing payments, maintaining records, collecting income or supporting other ongoing activities.
- Client AssetsStart hereClient assets are assets held, controlled or safeguarded by a financial business on behalf of its clients rather than for the business's own economic benefit. The rules governing client assets depend on the jurisdiction and type of institution involved.
- CustodyStart hereCustody refers to the safekeeping and administration of assets on behalf of an owner or investor. Depending on the investment, custody may involve securities, cash, physical assets, digital assets or the cryptographic credentials used to control blockchain based assets.
- EscrowEscrow is an arrangement in which assets, money or documents are held by an independent or agreed third party until specified conditions are satisfied. Once those conditions are met, the assets are released according to the arrangement.
- Fund AdministratorA fund administrator is a service provider responsible for specified operational and accounting functions for an investment fund. Depending on the arrangement, these can include maintaining records, calculating NAV, processing subscriptions and redemptions and preparing financial or investor information.
- Investment MandateAn investment mandate sets out how an investment portfolio or fund is intended or permitted to be managed. It may define areas such as eligible assets, investment objectives, risk limits or other restrictions on the manager.
- ReconciliationReconciliation is the process of comparing records from different systems or parties to confirm that they agree. For example, records of tokens in circulation may need to be compared with investor records, custodial records or information about underlying assets.
- RecordkeepingRecordkeeping is the process of maintaining accurate information about transactions, ownership, investors and other activities relating to an investment. Records may exist on traditional systems, blockchain infrastructure or a combination of both.
- SafekeepingSafekeeping is the function of protecting and maintaining assets or the means of controlling them on behalf of an investor or institution. The way safekeeping works depends on whether the asset is a security, physical asset, digital asset or another form of property.
- Self CustodySelf custody means directly controlling the cryptographic credentials used to access and authorize transactions involving your blockchain based assets. Instead of relying on an exchange or third party to control those credentials, the user manages them directly.
- Third Party CustodyStart hereThird party custody means an external organization safeguards assets or the means of controlling those assets on behalf of investors, funds, issuers or other clients. The custodian may be responsible for traditional financial assets, digital assets or both, depending on the service.
- TrusteeA trustee is a person or organization that holds or administers assets or rights under a trust arrangement for the benefit of specified beneficiaries. The trustee's responsibilities are determined by the trust documents and applicable law.
DeFi and RWA Integration
- BorrowingBorrowing is receiving money or another asset under an agreement to repay it according to specified terms. In blockchain based markets, borrowing may be facilitated through smart contracts and can require the borrower to provide collateral.
- CollateralStart hereCollateral is an asset pledged or otherwise provided to support a loan or financial obligation. If the borrower fails to meet the agreed obligations, the lender may have rights relating to the collateral according to the terms and applicable law.
- Collateral ManagementCollateral management is the process of monitoring, valuing and administering assets used to support financial obligations. It can include checking collateral values, eligibility, required coverage and what happens when agreed thresholds are breached.
- Collateralization RatioA collateralization ratio compares the value of collateral with the value of the debt or obligation it supports. For example, $150 of collateral supporting a $100 loan represents a collateralization ratio of 150%.
- ComposabilityComposability is the ability of different blockchain based applications and assets to interact and be combined with one another. A token supported by compatible infrastructure may be usable across multiple applications rather than remaining isolated within one platform.
- Credit UnderwritingStart hereCredit underwriting is the process of assessing whether a borrower is likely to repay a loan and under what terms credit should be provided. It can involve analyzing income, cash flows, financial statements, existing debt, collateral and other information relevant to the borrower.
- Decentralized Finance (DeFi)Decentralized Finance, usually shortened to DeFi, refers to financial applications and markets built using blockchain based infrastructure and smart contracts. DeFi applications can provide services such as trading, lending, borrowing and asset management without relying entirely on the same infrastructure used by traditional financial institutions.
- Lending ProtocolA lending protocol is a blockchain based system that facilitates lending and borrowing using smart contracts. Depending on the design, users may supply assets, borrow against collateral or participate in lending markets according to rules encoded within the protocol.
- LiquidationStart hereLiquidation is the process of selling or taking control of collateral or closing a position when specified financial requirements are no longer met. In collateralized lending, liquidation can occur when the value supporting a loan falls below a required level.
- Liquidation ThresholdA liquidation threshold is the point at which a collateralized position becomes eligible for liquidation according to the rules of the loan or protocol. The threshold is usually linked to the relationship between the amount borrowed and the value of the collateral.
- Liquidity PoolA liquidity pool is a collection of assets supplied to a smart contract to support activities such as trading, lending or other blockchain based financial services. Users who provide assets to a pool may receive fees or other returns depending on the protocol and its rules.
- Loan to Value (LTV)Start hereLoan to Value, usually shortened to LTV, compares the amount borrowed with the value of the asset or collateral supporting the loan. For example, borrowing $60 against collateral worth $100 represents an LTV of 60%.
- Onchain LendingOnchain lending refers to lending activity in which important parts of the lending process are recorded, managed or executed using blockchain based infrastructure. Depending on the structure, smart contracts may help manage loans, collateral, payments or other lending functions.
- OvercollateralizationOvercollateralization means providing collateral worth more than the amount being borrowed or the obligation it supports. For example, a borrower might provide $150 of eligible collateral to support a $100 loan.
- Real World Asset CollateralReal world asset collateral is collateral whose value ultimately comes from an asset or financial claim outside the blockchain. This could include tokenized securities, property related interests, receivables or other eligible real world assets.
- RWA ProtocolStart hereAn RWA protocol is a blockchain based platform or set of smart contracts designed to connect real world assets or financial claims with onchain financial infrastructure. Depending on the protocol, this might involve tokenization, lending, collateral, investment products or other financial activities.
- Tokenized CollateralStart hereTokenized collateral is an asset or financial interest represented using blockchain based tokens and used to secure a loan or another financial obligation. Examples could include tokenized securities, fund interests or other eligible tokenized assets.
- Undercollateralized LendingUndercollateralized lending occurs when the value of collateral provided is lower than the amount borrowed, or when a loan relies substantially on the borrower's creditworthiness rather than sufficient collateral to cover the full obligation.
Exercise, Assignment and Expiration
- After Hours Exercise RiskStart hereAfter hours exercise risk refers to the possibility that information or price movements after the regular trading session can affect exercise decisions while applicable exercise instructions may still be possible.
- American Style OptionStart hereAn American style option generally allows the holder to exercise the contract at any permitted time up to and including expiration, subject to the contract and market's applicable rules.
- Assignment RiskStart hereAssignment risk is the risk that a short option position is assigned, requiring the seller to fulfil the option's contractual obligation.
- Automatic ExerciseStart hereAutomatic exercise is a process under which qualifying options may be exercised at expiration without the holder manually submitting an exercise instruction, subject to applicable clearing, broker and contract rules.
- Cash SettlementStart hereCash settlement occurs when an option is settled through a cash payment based on the contract's settlement value rather than through delivery of the underlying asset.
- Closing an OptionStart hereClosing an option means entering an offsetting transaction that reduces or eliminates an existing options position. For a long option: Sell to Close For a short option: Buy to Close
- Dividend RiskStart hereDividend risk refers to the assignment and exercise considerations created by an upcoming dividend, particularly for certain short call positions.
- Do Not ExerciseDo Not Exercise refers to an instruction used in applicable markets or broker systems to prevent an option from being exercised when it might otherwise qualify for exercise under standard expiration procedures.
- Early AssignmentStart hereEarly assignment occurs when the seller of an option is assigned before expiration following early exercise by a holder under a contract that permits it.
- Early ExerciseStart hereEarly exercise occurs when an option is exercised before expiration. It is possible only when the contract's exercise style and applicable rules permit it.
- European Style OptionStart hereA European style option permits exercise only at expiration according to the contract's terms.
- Exercise by ExceptionExercise by exception is a clearing process under which options meeting specified in the money criteria at expiration may be automatically exercised unless contrary instructions are provided under the applicable procedures.
- Exercise CutoffStart hereAn exercise cutoff is the applicable deadline for submitting exercise instructions.
- Exercise NoticeAn exercise notice is the instruction or notification used to exercise an option according to the applicable broker, clearing and contract procedures.
- Exercise PriceStart hereExercise price is another name for the strike price specified by an option contract.
- Exercise StyleStart hereExercise style defines when an option holder is permitted to exercise the contract. Two major styles are: American style and European style.
- Expiration RiskStart hereExpiration risk refers to risks that arise as an option approaches expiration, including rapidly changing exposure, uncertain exercise outcomes and the possibility of ending up with an unintended underlying position.
- Expire In the MoneyAn option expires in the money when it has intrinsic value according to the relevant settlement or expiration reference.
- Expire Out of the MoneyAn option expires out of the money when it has no intrinsic value according to the relevant expiration or settlement reference.
- Expire WorthlessStart hereAn option expires worthless when it reaches expiration without intrinsic value and therefore has no expiration payoff.
- LEAPSStart hereLEAPS are long dated listed options with expirations substantially further into the future than typical short dated options.
- Monthly OptionsMonthly options are contracts belonging to a regular monthly expiration schedule.
- Option SettlementStart hereOption settlement is the process through which the obligations created by exercise and assignment are fulfilled. Settlement may involve: delivery of the underlying asset or a cash payment depending on the contract.
- Physical SettlementStart herePhysical settlement occurs when exercise and assignment result in delivery or receipt of the underlying asset according to the option contract. Example For a standard physically settled equity call, exercise can result in the holder buying the specified number of shares at the strike price. The assigned call writer takes the corresponding side of that transaction.
- Pin RiskStart herePin risk arises when the underlying asset trades very close to an option's strike around expiration, creating uncertainty about whether the option will ultimately be exercised or assigned.
- Settlement PriceSettlement price is a price or calculated reference used under a contract's rules to determine settlement.
- Weekly OptionsStart hereWeekly options are options with expirations scheduled on a weekly basis for products where such contracts are listed.
Fundamentals
- Asset BackingStart hereAsset backing refers to the assets, reserves or financial claims that support the value or obligations of a token. The exact relationship between the token and those assets depends on how the product is legally and financially structured.
- Asset ClassStart hereAn asset class is a broad group of investments that share similar characteristics. Examples include equities, bonds, real estate, commodities and cash or cash equivalent instruments. Tokenization does not create a completely new asset class simply because an asset is placed on a blockchain. A tokenized bond, for example, is still economically connected to the bond market.
- BlockchainA blockchain is a shared digital ledger that records transactions across a network of computers. Transactions are grouped and verified according to the rules of the network, creating a record that participants can independently check.
- Digital AssetA digital asset is something of value or a set of rights represented in digital form. The term covers a broad range of assets, including cryptocurrencies, stablecoins and tokens representing traditional or real world assets.
- Distributed Ledger Technology (DLT)Distributed Ledger Technology, or DLT, is a broader term for systems that allow records to be shared and synchronized across multiple participants or locations. Blockchain is one form of distributed ledger technology, although not every distributed ledger uses a blockchain structure.
- Fractional OwnershipStart hereFractional ownership allows an asset or investment to be divided into smaller ownership interests rather than requiring one investor to purchase the entire asset. Tokenization can provide digital infrastructure for issuing and transferring these smaller interests.
- OffchainOffchain refers to information, assets or processes that exist outside a blockchain. In RWA markets, physical assets, legal documents, bank accounts, custodial records and other parts of an investment structure may remain offchain even when tokens representing the investment exist onchain.
- OnchainStart hereOnchain means information, transactions or assets are recorded or managed directly on a blockchain. For RWAs, this might include token ownership, transfers, transaction history or certain rules controlled by smart contracts.
- Real World Asset (RWA)Start hereA real world asset, usually shortened to RWA, is an asset or financial claim that exists outside the blockchain but can be represented or used within blockchain based markets. Examples include real estate, government bonds, private credit, stocks, commodities and investment funds.
- TokenizationStart hereTokenization is the process of creating a digital token that represents ownership of, or certain rights connected to, an asset. The asset itself might be real estate, a bond, a share, a commodity, a fund or another type of asset.
- Tokenized AssetStart hereA tokenized asset is an asset whose ownership, economic rights or other interests are represented using digital tokens on a blockchain. For example, a token might represent an interest in real estate, a government bond, a fund or a commodity.
- Underlying AssetStart hereThe underlying asset is the actual asset, financial instrument or economic exposure that sits behind a tokenized product. For a tokenized property investment, the underlying asset may ultimately be real estate. For a tokenized Treasury product, it may be government securities.
Implied Volatility and Volatility Trading
- Call SkewCall skew describes a volatility structure in which upside call options trade at relatively elevated implied volatility compared with other strikes.
- Earnings IVStart hereEarnings IV refers to the elevated or event specific implied volatility associated with option contracts that capture a company's earnings announcement.
- Event PremiumStart hereEvent premium refers to additional option value associated with uncertainty surrounding a specific event expected to occur before expiration.
- High Implied VolatilityStart hereHigh implied volatility means option prices are reflecting relatively high expected volatility, either in absolute terms or relative to an appropriate historical or market context.
- Implied MoveStart hereImplied move is another term used for the magnitude of price movement inferred from option prices over a specified period.
- Implied Volatility Is Not DirectionStart hereImplied volatility measures the volatility embedded in option prices. It does not, by itself, specify whether the underlying asset is expected to rise or fall.
- Implied Volatility PremiumImplied volatility premium refers to implied volatility being elevated relative to an appropriate realized volatility expectation or reference.
- IV ContractionStart hereIV contraction occurs when implied volatility falls.
- IV CrushStart hereIV crush is a sharp decline in implied volatility, commonly associated with the removal of uncertainty after a significant scheduled event.
- IV ExpansionStart hereIV expansion occurs when implied volatility rises.
- Long VegaLong Vega describes positive exposure to increases in implied volatility.
- Long VolatilityStart hereLong volatility describes a position or strategy that generally benefits from greater volatility or sufficiently large market movement, depending on the structure of the trade. Long options commonly provide positive Vega exposure, although the complete position must always be considered.
- Low Implied VolatilityStart hereLow implied volatility means option prices are reflecting relatively low expected volatility compared with an appropriate reference or historical context.
- Put SkewStart herePut skew describes a volatility structure in which lower strike puts trade at higher implied volatility than comparable higher strike options.
- Short VegaShort Vega describes negative exposure to changes in implied volatility.
- Short VolatilityStart hereShort volatility describes a position or strategy that generally benefits when volatility or realized movement is lower than the position has effectively priced or sold, depending on the structure. Short options commonly provide negative Vega exposure.
- Volatility CurveA volatility curve is a visual representation of implied volatility across strikes, expirations or another relevant dimension.
- Volatility SkewStart hereVolatility skew describes differences in implied volatility across option strikes for the same underlying and expiration.
- Volatility SmileStart hereA volatility smile is a pattern where implied volatility is higher for options further away from the current underlying price on both sides than for options closer to the money. When plotted by strike, the shape can resemble a smile.
- Volatility SmirkA volatility smirk is an asymmetric implied volatility pattern across strikes rather than the more symmetrical shape suggested by a volatility smile.
- Volatility SurfaceStart hereA volatility surface is a three dimensional representation of implied volatility across both strike prices and expiration dates.
- Volatility Term StructureStart hereVolatility term structure describes how implied volatility differs across option expirations for the same underlying asset.
- Volatility TradingStart hereVolatility trading is an approach that focuses on changes in, or differences between, expected and realized volatility rather than relying only on the direction of the underlying asset.
Indicators
- 20 EMAThe 20 EMA is an Exponential Moving Average calculated using the previous 20 periods, with greater weighting given to recent prices.
- 200 Day Moving AverageStart hereThe 200 day moving average represents average price over approximately the previous 200 daily periods according to the calculation method being used.
- 50 Day Moving AverageStart hereThe 50 day moving average represents the average price over approximately the previous 50 daily periods according to the moving average method being used.
- Anchored VWAPAnchored VWAP calculates Volume Weighted Average Price beginning from a specific point selected by the analyst, such as an important high, low, breakout or major market event.
- Average True Range (ATR)Start hereAverage True Range, or ATR, is an indicator that measures the average range of price movement over a selected number of periods while accounting for gaps between periods.
- Bearish DivergenceBearish divergence generally describes a situation where price forms a higher high while a selected momentum or market indicator forms a lower high.
- Bullish DivergenceBullish divergence generally describes a situation where price forms a lower low while a selected momentum or market indicator forms a higher low.
- DivergenceStart hereDivergence occurs when price and another market indicator move differently in a way considered meaningful by the analyst.
- Exponential Moving Average (EMA)Start hereAn Exponential Moving Average, or EMA, is a moving average that gives greater weighting to more recent price data.
- Fibonacci RetracementFibonacci retracement is a technical analysis tool that plots percentage levels between two selected price points, commonly including 23.6%, 38.2%, 50%, 61.8% and 78.6%.
- MACDStart hereMACD, or Moving Average Convergence Divergence, is a momentum and trend indicator derived from the relationship between moving averages.
- Moving AverageStart hereA moving average smooths price data over a selected number of periods to help traders observe broader price direction and trend behavior.
- Relative Strength Index (RSI)Start hereThe Relative Strength Index, or RSI, is a momentum oscillator that measures the magnitude of recent price gains relative to recent price losses on a scale from 0 to 100.
- Simple Moving Average (SMA)Start hereA Simple Moving Average, or SMA, calculates the arithmetic average price over a selected number of periods.
- VWAPStart hereVWAP stands for Volume Weighted Average Price. It measures average traded price over a selected period while weighting prices according to trading volume.
Investing, Income and Valuation
- Accrued InterestAccrued interest is interest that has been earned or accumulated since the previous interest payment but has not yet been paid. It is particularly relevant to bonds and other interest bearing debt instruments.
- Annual Percentage Yield (APY)Annual Percentage Yield, usually shortened to APY, expresses an annualized rate of return while taking the effect of compounding into account. It is commonly used across savings products, DeFi and other yield generating investments.
- Capital AppreciationCapital appreciation is an increase in the value of an asset or investment over time. For example, if an asset is purchased for $100,000 and later becomes worth $120,000, the increase in value represents capital appreciation before considering costs or taxes.
- Cash FlowStart hereCash flow is money moving into or out of an asset, business or investment. For an RWA investment, incoming cash flow might come from rent, interest payments, dividends, loan repayments or other income generated by the underlying asset.
- CouponStart hereA coupon is the interest payment associated with a bond or other debt instrument. The coupon rate is generally stated as a percentage of the bond's face or principal amount and determines the interest the issuer is scheduled to pay according to the terms of the instrument.
- DiscountStart hereA discount occurs when an asset or token trades below a relevant reference value. For example, a tokenized investment trading at $97 while its underlying reference value is $100 would be trading at a 3% discount to that reference.
- DistributionA distribution is a payment or transfer of income, profits, capital or other value from an investment structure to its investors. Depending on the asset, distributions might come from rent, interest, dividends, realized gains or other cash flows.
- DividendA dividend is a distribution a company may make to shareholders, commonly from profits or accumulated earnings. Dividends are not guaranteed and may be increased, reduced or stopped depending on the company and the rights attached to the shares.
- Face ValueFace value is the stated value of a bond or other debt instrument used to calculate certain contractual payments and, typically, the amount due at maturity. It is also commonly called par value in bond markets.
- Fair ValueFair value is an estimate of what an asset or financial instrument is worth under current market conditions using an appropriate valuation approach. It may be based on observable market prices, comparable assets, expected cash flows or other valuation methods depending on the investment.
- Market ValueStart hereMarket value is the price an asset or investment can currently command in the market. For a traded tokenized asset, this may be the price buyers and sellers are currently willing to transact at.
- MaturityStart hereMaturity is the date on which a bond, loan or other time limited financial obligation reaches the end of its agreed term. For many debt instruments, this is when the remaining principal becomes due for repayment.
- Net Asset Value (NAV)Start hereNet Asset Value, usually shortened to NAV, is the value of an investment fund's or vehicle's assets minus its liabilities. NAV is often expressed as a value per share or unit, allowing investors to compare the underlying value of a fund with the price at which its shares or tokens are available.
- PremiumStart hereA premium occurs when an asset or token trades above a relevant reference value. For example, a tokenized investment trading at $102 while its underlying reference value is $100 would be trading at a 2% premium to that reference.
- PrincipalStart herePrincipal is the original amount of money invested, borrowed or owed before interest or other returns are added. For a bond or loan, it commonly refers to the amount the borrower is obligated to repay according to the terms of the debt.
- RedemptionStart hereRedemption is the process through which an investor exchanges an investment, share, unit or token according to the product's terms in order to receive cash, an underlying asset or another form of value. The exact process varies significantly between products.
- Total ReturnStart hereTotal return measures the overall gain or loss from an investment, taking into account both changes in its value and income received from it. For an RWA, that could include income such as interest, rent or dividends alongside any increase or decrease in the value of the investment.
- ValuationStart hereValuation is the process of estimating what an asset, company or investment is worth. Different assets require different valuation methods. Publicly traded securities may have continuously available market prices, while real estate, private credit and private companies may require appraisals, financial models or comparisons with similar assets.
- YieldStart hereYield measures the income generated by an investment relative to its value or the amount invested. Depending on the asset, that income might come from interest, bond payments, rent, dividends or other cash flows.
Leverage, Margin and Collateral
- Account BalanceStart hereAccount balance is the amount recorded in a trading account according to the platform's accounting system. Depending on the platform, unrealized profit and loss may be shown separately from this balance.
- Account EquityStart hereAccount equity represents the current value of a trading account after relevant profits and losses are taken into account according to the platform's calculation. In many systems, unrealized PnL affects account equity while positions remain open.
- Available MarginStart hereAvailable margin is the amount of eligible account capital currently available to support existing positions or open additional ones. Its exact calculation varies by platform.
- Buying PowerBuying power is the amount of additional trading exposure an account may be able to open based on its available capital, margin rules and leverage.
- Collateral ValueCollateral value is the value a trading platform assigns to assets being used to support margin obligations. It may not always equal the asset's full market value because platforms can apply valuation adjustments or collateral weights.
- Collateral WeightA collateral weight is the proportion of an asset's value that a platform recognizes for margin purposes. Riskier or more volatile assets may receive a lower collateral weight than more stable collateral.
- Cross MarginStart hereCross margin is a margin mode in which eligible account collateral can be shared across positions according to the platform's rules. Profits, losses and available collateral elsewhere in the account may therefore affect how individual positions are supported.
- Effective LeverageStart hereEffective leverage describes the relationship between a trader's actual market exposure and the capital or equity supporting that exposure. It can differ from the maximum leverage selected or displayed by an exchange.
- HaircutA haircut is a reduction applied to the value of an asset when determining how much of that value will be recognized for collateral or risk purposes.
- Initial MarginStart hereInitial margin is the amount of margin required to open or establish a leveraged position. The amount depends on factors such as position size, leverage and the platform's margin rules.
- Isolated MarginStart hereIsolated margin is a margin mode where a specified amount of margin is allocated to an individual position rather than automatically sharing all eligible account collateral with it.
- Maintenance MarginStart hereMaintenance margin is the minimum amount of margin or account equity that must be maintained according to a platform's rules to keep a leveraged position from entering its liquidation process.
- MarginStart hereMargin is capital used to support a leveraged trading position. In perpetual futures, a trader deposits or allocates collateral as margin, allowing them to control a position that may be larger than the amount of margin being used.
- Margin AssetStart hereA margin asset is an asset accepted by a trading platform as collateral for leveraged positions. Depending on the contract and platform, this could be a stablecoin, cryptocurrency or another eligible asset.
- Margin BalanceMargin balance is a measure used by trading platforms to represent the value available within a margin account after applying the platform's relevant accounting rules. The exact calculation varies between exchanges.
- Margin CallStart hereA margin call is a warning or requirement that additional margin is needed because an account or position no longer satisfies, or is approaching, required margin levels. How this works varies significantly between trading platforms.
- Margin RatioStart hereMargin ratio is a risk measure used by trading platforms to compare account or position resources with required margin. The exact formula and interpretation vary by platform.
- Margin RequirementStart hereA margin requirement is the amount or proportion of capital a trading platform requires to open or maintain a leveraged position. Different requirements may apply when opening a position and while keeping it open.
- Maximum LeverageStart hereMaximum leverage is the highest leverage a trading platform permits for a particular market, position size or account under its rules.
- Portfolio MarginPortfolio margin is a margin system that evaluates risk across multiple positions rather than treating every position completely independently. Offsets, hedges and correlations may be considered when calculating margin requirements.
- Realized PnLStart hereRealized PnL is profit or loss that has been recognized according to the platform's accounting rules, commonly after some or all of a position has been closed.
- Return on Equity (ROE)In leveraged trading interfaces, return on equity, or ROE, commonly expresses a position's profit or loss relative to the capital or margin used for the calculation. The exact formula can vary between platforms.
- Unrealized PnLStart hereUnrealized PnL is the profit or loss associated with an open position that has not yet been fully realized according to the platform's accounting rules. It changes as the relevant price used for the calculation moves.
- Used MarginUsed margin is the portion of a trader's eligible capital currently allocated or required to support open positions and, depending on the platform, certain open orders.
Liquidation and Exchange Risk Systems
- ADL QueueAn ADL queue is the ranking system a platform uses to determine which positions may be selected for auto deleveraging if ADL becomes necessary. The ranking methodology varies by platform.
- Auto Deleveraging (ADL)Start hereAuto deleveraging, usually shortened to ADL, is a mechanism used by some derivatives platforms to reduce or close positions held by other traders when losses from liquidated positions cannot be adequately absorbed through the platform's normal liquidation and insurance mechanisms.
- Bankruptcy PriceStart hereBankruptcy price is a theoretical price level used in some leveraged trading systems at which the margin allocated to a position would be exhausted under the platform's calculation. It is distinct from the liquidation price.
- Estimated Liquidation PriceStart hereEstimated liquidation price is a platform's current estimate of the price at which a leveraged position would meet its liquidation conditions. The estimate can change as the position, margin, account equity or platform parameters change.
- Forced LiquidationStart hereForced liquidation occurs when a trading platform takes action to reduce or close a leveraged position because it no longer satisfies required margin conditions.
- Insurance FundStart hereAn insurance fund is a pool of assets maintained by some derivatives platforms to help absorb certain losses arising when liquidated positions cannot be closed without creating a deficit. The funding and use of the pool vary by platform.
- Liquidation BufferStart hereLiquidation buffer describes the amount of room remaining between a position's current market conditions and its estimated liquidation point. It may be considered in price, percentage or margin terms depending on the context.
- Liquidation DistanceStart hereLiquidation distance is the difference between the current or relevant position price and the estimated liquidation price. It is often expressed as a percentage.
- Liquidation EngineStart hereA liquidation engine is the system a leveraged trading platform uses to manage positions that breach its required margin conditions. Depending on the platform, it may reduce, close or otherwise manage positions in an attempt to prevent losses from exceeding the resources available to support them.
- Liquidation FeeStart hereA liquidation fee is a fee or charge associated with the liquidation of a leveraged position. How it is calculated and where the proceeds go depend on the platform.
- Liquidation PriceStart hereThe liquidation price is the estimated market level at which a leveraged position is expected to meet the conditions for liquidation under a trading platform's margin rules. Its calculation can depend on factors such as position size, leverage, margin, maintenance requirements and the price reference used by the platform.
- Liquidation SlippageLiquidation slippage is the difference between the expected price of a liquidation transaction and the price at which it is actually executed because of available market liquidity and price movement.
- Maintenance Margin Rate (MMR)Start hereThe maintenance margin rate, commonly shortened to MMR, is a rate used by a derivatives platform when calculating the minimum margin required to maintain a leveraged position. The rate can vary according to the market, position size or risk tier.
- Negative EquityNegative equity occurs when losses or obligations exceed the value available to support them under the relevant account or position calculation.
- Partial LiquidationPartial liquidation is a risk process in which a platform reduces part of a leveraged position rather than immediately closing the entire position. The exact process varies by platform.
- Position TierA position tier is a risk category applied by some derivatives platforms based on the size of a trader's position or exposure. Different tiers can have different margin requirements, maintenance requirements and maximum leverage.
- Risk LimitStart hereA risk limit is a restriction or set of requirements a derivatives platform uses to control how much leveraged exposure a trader or position can take. Larger positions may face different margin requirements or lower maximum leverage.
- Socialized LossA socialized loss is a loss allocation mechanism in which certain trading losses that cannot otherwise be covered are distributed among a wider group of market participants according to a platform's rules.
Liquidation Data and Derivatives Positioning
- Estimated LiquidationsStart hereEstimated liquidations are modeled estimates of leveraged positions that may become subject to liquidation if price reaches particular levels.
- Forced BuyingStart hereForced buying occurs when market participants are required or strongly compelled to buy exposure as positions are closed or risk systems take action. Short liquidations are one source of forced buying in perpetual markets.
- Forced SellingStart hereForced selling occurs when market participants are required or strongly compelled to sell exposure as positions are closed or risk systems take action. Long liquidations are one source of forced selling in perpetual markets.
- Leverage FlushStart hereA leverage flush describes a rapid reduction in leveraged market exposure, often during a sharp move that forces or encourages many traders to close positions.
- Liquidation CascadeStart hereA liquidation cascade occurs when forced liquidations contribute to further price movement, which then causes additional leveraged positions to reach liquidation conditions. This can create a self reinforcing sequence of forced position closures.
- Liquidation ClusterStart hereA liquidation cluster is an area where a relatively large amount of leveraged positioning is estimated to become vulnerable to liquidation around similar price levels.
- Liquidation DataStart hereLiquidation data tracks leveraged positions that have been forcibly reduced or closed after reaching a trading platform's liquidation conditions. It may include information such as liquidation value, direction, price, time and trading venue.
- Liquidation EventA liquidation event is a period in which forced position closures become significant enough to materially affect market activity or trader positioning.
- Liquidation HeatmapStart hereA liquidation heatmap is a visual tool designed to show price areas where leveraged positions are estimated to face elevated liquidation risk. Different providers use different data sources, assumptions and modeling methods.
- Liquidation ImbalanceA liquidation imbalance describes a meaningful difference between the amount of long and short positioning being liquidated, or estimated to be vulnerable to liquidation, depending on the dataset being used.
- Liquidation LevelStart hereA liquidation level is a price area where one or more leveraged positions are estimated or known to become vulnerable to liquidation. When used by market data tools, these levels are often estimates derived from available market information rather than exact knowledge of every trader's position.
- Liquidation MapA liquidation map is a visual representation of estimated liquidation exposure at different price levels. Depending on the provider, its design and methodology may differ from a liquidation heatmap.
- Liquidation SpikeA liquidation spike is a sudden increase in liquidation activity over a relatively short period.
- Liquidation SweepA liquidation sweep describes a market move through an area containing significant leveraged positions, causing a concentration of liquidations as price passes through the zone.
- Liquidation VolumeStart hereLiquidation volume measures the value or quantity of leveraged positions liquidated over a specified period. It may be separated into long and short liquidations.
- Long LiquidationStart hereA long liquidation occurs when a leveraged long position is forcibly reduced or closed after it no longer satisfies the platform's required margin conditions.
- Long SqueezeStart hereA long squeeze is a rapid downward market move in which leveraged long positions are forced or pressured to close, contributing additional selling to the decline.
- Open Interest FlushStart hereAn open interest flush is a rapid reduction in open interest as substantial derivatives exposure is removed from the market. It may result from liquidations, stop outs, voluntary position closures or a combination of these.
- Short LiquidationStart hereA short liquidation occurs when a leveraged short position is forcibly reduced or closed after it no longer satisfies the platform's required margin conditions.
- Short SqueezeStart hereA short squeeze is a rapid upward market move in which short positions are forced or pressured to close, contributing additional buying to the rally.
Liquidity, Order Flow and Market Microstructure
- AbsorptionStart hereAbsorption occurs when substantial aggressive buying or selling is met by enough opposing liquidity that price makes relatively limited progress.
- Aggressive BuyerStart hereAn aggressive buyer is a market participant who accepts available sell prices to execute immediately rather than waiting for sellers to trade at a lower bid. This commonly involves buying at the ask or otherwise removing sell side liquidity.
- Aggressive SellerStart hereAn aggressive seller is a market participant who accepts available buy prices to execute immediately rather than waiting for buyers to trade at a higher ask. This commonly involves selling at the bid or otherwise removing buy side liquidity.
- Bid Ask ImbalanceA bid ask imbalance describes a meaningful difference between buying and selling activity measured at bid and ask prices. The exact definition depends on the order flow tool being used.
- Buy AbsorptionBuy absorption describes a situation where aggressive buying is met by substantial sell liquidity, limiting further upward price movement.
- Buy PressureStart hereBuy pressure describes market activity in which buying demand is exerting upward pressure on price or aggressively consuming available sell liquidity. The exact way it is measured depends on the data and tools being used.
- Cumulative Volume Delta (CVD)Start hereCumulative Volume Delta, commonly called CVD, tracks the cumulative difference between aggressive buying volume and aggressive selling volume over time. The precise methodology can vary between data providers.
- CVD DivergenceCVD divergence occurs when price and Cumulative Volume Delta move differently in a way that traders consider meaningful. For example, price may make a new high while CVD fails to make a corresponding high.
- Footprint ChartStart hereA footprint chart displays detailed trading activity within individual price bars, commonly showing executed buying and selling volume at specific price levels. Different platforms offer different footprint formats.
- Hidden LiquidityHidden liquidity is trading interest that is not fully visible in the publicly displayed order book.
- Iceberg OrderAn iceberg order is an order structure in which only part of the total order quantity is displayed publicly while additional quantity remains hidden and may be replenished as the visible portion executes.
- Liquidity ClusterStart hereA liquidity cluster is an area where a relatively large concentration of orders or potential trading liquidity is located. The term can refer to visible order book liquidity or inferred areas where orders are expected to be concentrated.
- Liquidity GrabLiquidity grab is a trading term commonly used to describe a relatively quick move through an area of expected liquidity followed by a rejection or reversal.
- Liquidity Pool (in trading)Start hereIn trading analysis, a liquidity pool can describe an area where traders expect a concentration of executable orders, stops or other market activity to exist. This is different from a DeFi liquidity pool used by an automated market maker.
- Liquidity SweepStart hereA liquidity sweep occurs when price trades through an area where orders or liquidity are concentrated, triggering or executing that activity as price moves through the level.
- Maker VolumeMaker volume refers to trading volume associated with orders that were resting as liquidity before being executed against.
- Market BuyStart hereA market buy is an aggressive buy instruction that executes against available sell liquidity in the order book. It typically trades against one or more asks.
- Market ImpactStart hereMarket impact is the effect an order or series of orders has on market price as it consumes available liquidity.
- Market SellStart hereA market sell is an aggressive sell instruction that executes against available buy liquidity in the order book. It typically trades against one or more bids.
- Order Book ImbalanceOrder book imbalance describes a difference between visible buy and sell liquidity in an order book according to a particular measurement.
- Order FlowStart hereOrder flow is the study of buying and selling activity as orders interact with available market liquidity. It focuses on how trades are actually being executed rather than looking only at the resulting price movement.
- Passive OrderA passive order is an order that rests in the market waiting for another participant to trade against it rather than immediately crossing the spread for execution.
- Price AcceptancePrice acceptance describes market behavior suggesting that participants are willing to continue trading around a new price area rather than immediately rejecting it.
- Price RejectionStart herePrice rejection describes market behavior where price trades into or through an area but fails to remain there and moves away relatively quickly.
- Sell AbsorptionSell absorption describes a situation where aggressive selling is met by substantial buy liquidity, limiting further downward price movement.
- Sell PressureStart hereSell pressure describes market activity in which selling is exerting downward pressure on price or aggressively consuming available buy liquidity.
- SpoofingStart hereSpoofing is manipulative trading behavior involving orders placed with the intent to cancel them before execution in order to create a misleading impression of market supply, demand or liquidity.
- Taker VolumeTaker volume measures trading volume generated by orders that execute against liquidity already available in the market. It can often be separated into aggressive buying and aggressive selling activity.
Market Context
- Core CPICore CPI is a measure of consumer price inflation that excludes food and energy categories.
- CPIStart hereCPI, or Consumer Price Index, measures changes over time in prices paid by consumers for a basket of goods and services.
- DXYStart hereDXY commonly refers to the U.S. Dollar Index, which measures the value of the U.S. dollar against a basket of major currencies.
- Economic CalendarStart hereAn economic calendar lists scheduled economic releases, central bank decisions and other events that may affect financial markets.
- Federal Funds RateStart hereThe federal funds rate is the interest rate at which eligible depository institutions lend reserve balances to one another overnight, with the Federal Reserve setting a target range for the rate through monetary policy.
- FOMCStart hereFOMC stands for Federal Open Market Committee, the Federal Reserve body responsible for key U.S. monetary policy decisions.
- NFPStart hereNonfarm Payrolls, commonly abbreviated NFP, is a major U.S. employment report measuring changes in payroll employment across most nonfarm industries.
- PCE InflationStart herePCE inflation refers to inflation measured using the Personal Consumption Expenditures price index.
- Risk OffStart hereRisk off describes market conditions in which investors are generally reducing exposure to assets perceived as carrying greater risk and favoring more defensive positioning.
- Risk OnStart hereRisk on describes market conditions in which investors are generally showing greater willingness to hold assets perceived as carrying higher risk.
- US Treasury YieldStart hereA U.S. Treasury yield represents the market yield associated with U.S. government debt of a particular maturity.
- US10YStart hereUS10Y commonly refers to the yield on the 10 year U.S. Treasury note.
- VIXStart hereVIX is an index designed to measure the options market's expectation of near term volatility in the S and P 500. It is often referred to as a measure of expected U.S. equity market volatility.
Market Structure and Trading Context
- BreakdownStart hereA breakdown occurs when price moves below an important support level, range boundary or established market structure.
- BreakoutStart hereA breakout occurs when price moves beyond an important resistance level, range boundary or other established market structure.
- DowntrendStart hereA downtrend is a market condition in which price generally progresses lower over time, commonly producing lower highs and lower lows.
- False BreakoutStart hereA false breakout occurs when price moves beyond an important resistance or range boundary but fails to sustain the move and returns into the previous structure.
- Higher HighStart hereA higher high occurs when price forms a significant high above a previous comparable swing high.
- Higher LowStart hereA higher low occurs when a meaningful price low forms above a previous comparable swing low.
- Lower HighStart hereA lower high occurs when a significant price high forms below a previous comparable swing high.
- Lower LowStart hereA lower low occurs when price forms a significant low below a previous comparable swing low.
- Market StructureStart hereMarket structure describes the pattern created by price as it forms highs, lows, trends, ranges and changes in direction over time.
- PullbackStart hereA pullback is a temporary move against the prevailing directional move or trend.
- RangeStart hereA range is a market condition where price repeatedly trades between identifiable upper and lower areas without establishing a sustained directional trend.
- ReclaimStart hereA reclaim occurs when price moves back above a level it had previously lost and begins trading above it again.
- ResistanceStart hereResistance is a price area where selling interest has previously been sufficient to slow, stop or reverse an advance.
- RetestStart hereA retest occurs when price returns to an important level after previously breaking through or moving away from it.
- SupportStart hereSupport is a price area where buying interest has previously been sufficient to slow, stop or reverse a decline.
- Swing HighStart hereA swing high is a local price peak formed when price rises and subsequently moves lower.
- Swing LowStart hereA swing low is a local price trough formed when price falls and subsequently moves higher.
- TrendStart hereA trend is a sustained tendency for price to move predominantly in one direction over a period. Markets can trend upward, downward or move without a clear directional trend.
- UptrendStart hereAn uptrend is a market condition in which price generally progresses higher over time, commonly producing a sequence of higher highs and higher lows.
Markets and Trading
- 24/7 MarketsA 24/7 market is a market that can operate continuously, including outside traditional exchange hours and across weekends. Blockchain networks can technically allow token transfers and trading infrastructure to operate at any time.
- AskThe ask is the lowest price a seller is currently willing to accept for an asset in a quoted market. It represents the selling side of the market and is sometimes called the offer.
- Atomic SettlementAtomic settlement is a transaction structure in which the transfer of one asset occurs only if the corresponding transfer of the other asset also occurs. Either both sides of the transaction complete, or neither does.
- BidThe bid is the highest price a buyer is currently willing to pay for an asset in a quoted market. It represents the buying side of the market.
- Bid Ask SpreadThe bid ask spread is the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. If the best bid is $99 and the best ask is $101, the bid ask spread is $2.
- ClearingClearing is the process between trade execution and final settlement in which transaction details and obligations are confirmed and prepared for completion. In traditional markets, clearing infrastructure can also help manage what each party owes and reduce certain counterparty risks.
- Delivery versus Payment (DvP)Delivery versus Payment, usually shortened to DvP, is a settlement principle designed to link the delivery of an asset with the corresponding payment. The objective is to avoid one party delivering its side of the transaction without receiving what it is owed.
- LiquidityStart hereLiquidity describes how easily an asset can be bought or sold without causing a significant change in its price. A highly liquid market usually has plenty of buyers and sellers, while an illiquid market may have limited trading activity and larger differences between buying and selling prices.
- Liquidity ProviderA liquidity provider supplies assets or capital to a market so that other participants can trade more easily. Depending on the market structure, liquidity may be provided through an order book, market making arrangement or liquidity pool.
- Market DepthMarket depth describes the amount of buying and selling interest available at different prices in a market. A deep market has substantial orders available around the current price, while a shallow market may have relatively little liquidity beyond the best bid and ask.
- Market MakerA market maker is a market participant that regularly provides prices at which it is prepared to buy and sell an asset. By providing both bids and asks, market makers can make it easier for other participants to trade.
- Order BookAn order book is a list of outstanding buy and sell orders for an asset, usually organized by price. It shows the prices and quantities at which market participants are currently willing to transact.
- Primary MarketStart hereThe primary market is where an asset or financial instrument is first issued and sold to investors. In tokenized markets, this is where investors may acquire newly issued tokens directly from an issuer, fund, platform or other authorized distributor.
- Secondary MarketStart hereA secondary market is a market where investors buy and sell existing assets or financial instruments after their initial issuance. For RWAs, a secondary market may allow eligible investors to trade tokenized assets with other investors rather than waiting for the investment to mature or be redeemed.
- SettlementStart hereSettlement is the process through which a completed trade is finalized and the asset and payment are transferred between the relevant parties. Traditional financial markets may settle after the trade date, while some blockchain based systems can support much faster settlement.
- Settlement FinalitySettlement finality is the point at which a transaction is considered complete and cannot normally be reversed through the settlement system. In blockchain based markets, technical finality depends on the design and rules of the network being used.
- Settlement RiskStart hereSettlement risk is the risk that one side of a transaction fails to deliver the asset or payment required to complete the trade. It can arise during the period between agreeing a transaction and completing settlement.
- SlippageStart hereSlippage is the difference between the price expected when placing a trade and the average price at which the trade actually executes. It often occurs when there is not enough liquidity available at the expected price to fill the entire order.
- Trading VolumeStart hereTrading volume measures how much of an asset is bought and sold during a particular period. It may be expressed in units of the asset or in monetary value.
- TransferA transfer is the movement of an asset or token from one person, account or blockchain address to another. For tokenized assets, the technical transfer may take place onchain while legal or compliance rules determine whether that transfer is permitted.
Open Interest, Volume and Positioning
- Aggregated Open InterestStart hereAggregated open interest combines open interest data from multiple derivatives markets or trading platforms into a broader measure.
- Crowded TradeStart hereA crowded trade describes a market situation where many participants appear to have similar exposure, expectations or positioning.
- Long Build UpLong build up describes conditions suggesting that new long exposure is being added to a derivatives market. It is usually inferred from several pieces of data rather than open interest alone.
- Long Short RatioStart hereA long short ratio compares a selected measure of long positioning with short positioning. The exact methodology varies by platform and data provider. It may refer to accounts, positions, traders or another measure.
- Long UnwindingStart hereLong unwinding occurs when traders reduce or close existing long positions. Closing long exposure generally involves selling, which can contribute to downward price pressure.
- Net LongStart hereNet long describes a trader, account or group whose long exposure exceeds its short exposure according to the measure being used.
- Net ShortStart hereNet short describes a trader, account or group whose short exposure exceeds its long exposure according to the measure being used.
- OI DeltaOI delta describes the change in open interest over a selected period. Positive OI delta indicates an increase, while negative OI delta indicates a decrease.
- Open Interest (OI)Start hereOpen interest, usually shortened to OI, measures the amount of outstanding derivative exposure represented by contracts or positions that remain open. It changes as positions are opened and closed.
- Open Interest ChangeStart hereOpen interest change measures how much open interest has increased or decreased over a specified period. It may be expressed as an absolute amount or percentage change.
- Open Interest ValueOpen interest value expresses outstanding derivative exposure in monetary terms rather than only as a number of contracts or units.
- Open Interest Weighted FundingOpen interest weighted funding is a funding measure that gives greater influence to markets or contracts with larger amounts of open interest when combining funding data.
- Perpetual VolumeStart herePerpetual volume measures the amount of trading activity taking place in perpetual futures contracts over a specified period.
- Position Build UpStart herePosition build up describes a period in which derivatives exposure is increasing as new positions enter the market. Rising open interest is one indicator that a build up may be occurring.
- Position Long Short RatioA position long short ratio compares long and short positioning according to the position based methodology used by a particular platform or data provider.
- PositioningStart herePositioning describes how traders or groups of market participants are exposed to a market. It can include information about long and short exposure, leverage, open interest, funding and other derivatives data.
- Short Build UpShort build up describes conditions suggesting that new short exposure is being added to a derivatives market. It is generally inferred using open interest alongside price, funding, volume and other positioning data.
- Short CoveringStart hereShort covering occurs when traders reduce or close short positions. Closing a short generally requires buying back the exposure, which can contribute to upward price pressure.
- Spot VolumeStart hereSpot volume measures trading activity in the underlying spot market over a specified period.
- Trader Long Short RatioA trader long short ratio compares the number or proportion of traders classified as net long with those classified as net short within a particular dataset.
- VolumeStart hereVolume measures the amount of trading activity that takes place during a specified period. Depending on the market and data provider, it may be expressed in units, contracts or monetary value.
- Volume DeltaStart hereVolume delta measures the difference between aggressive buying volume and aggressive selling volume over a specified period. The precise calculation depends on the data source and methodology.
Option Pricing and Value
- Binomial Option Pricing ModelThe binomial option pricing model estimates option value by modeling possible movements in the underlying asset over a series of time steps.
- Black Scholes ModelThe Black Scholes model is a widely known mathematical framework for estimating the theoretical value of certain options using inputs including the underlying price, strike price, time to expiration, volatility and interest rates.
- Days to ExpirationStart hereDays to expiration, commonly shortened to DTE, is the number of days remaining until an option expires.
- Dividend Effect on OptionsStart hereExpected dividends can affect option pricing because the underlying stock's price and the economics of holding shares versus options are influenced by dividend payments.
- Earnings VolatilityStart hereEarnings volatility refers to the volatility priced around a company's earnings announcement and the uncertainty surrounding the market's reaction to the results.
- Event VolatilityStart hereEvent volatility refers to the additional uncertainty associated with a known event that may cause a significant move in the underlying asset. Examples include: earnings, major economic announcements, regulatory decisions, product announcements, or other scheduled catalysts.
- Ex Dividend DateThe ex dividend date is the date from which a stock trades without entitlement to the next declared dividend for a new purchaser, under the applicable market rules.
- Expected MoveStart hereExpected move is an estimate of the magnitude of price movement that option prices imply over a specified period. It describes a range or magnitude of expected movement, not a guaranteed trading range.
- Expected RangeAn expected range is a price range derived from an estimate of expected movement over a specified period.
- Historical VolatilityStart hereHistorical volatility measures how much an asset's price has varied over a historical period using past price data.
- Implied VolatilityStart hereImplied volatility is the level of volatility implied by current option prices when those prices are interpreted through an option pricing model. It reflects the market's pricing of future uncertainty over the relevant period rather than a direct prediction of direction.
- Implied vs Realized VolatilityStart hereImplied versus realized volatility compares the volatility reflected in option prices with the volatility actually experienced by the underlying asset.
- Interest Rate EffectThe interest rate effect describes how changes in interest rates can influence option values through the economics incorporated into option pricing.
- IV PercentileStart hereIV Percentile measures the proportion of observations in a chosen historical period during which implied volatility was below the current level.
- IV RankStart hereIV Rank is a metric designed to show where current implied volatility sits relative to its own historical range over a chosen lookback period. A common version compares current IV with the highest and lowest IV readings over the previous year.
- Option PricingStart hereOption pricing is the process of determining the value of an option based on factors including the underlying asset price, strike price, time remaining until expiration, expected volatility, interest rates and, where relevant, dividends.
- Option Pricing FactorsStart hereOption pricing factors are the main variables that influence the theoretical and market value of an option. The major factors include: Underlying price Strike price Time to expiration Implied volatility Interest rates Dividends, where applicable
- Option Pricing ModelStart hereAn option pricing model is a mathematical framework used to estimate an option's theoretical value based on assumptions and inputs such as the underlying price, strike, time to expiration, volatility and interest rates.
- Realized VolatilityStart hereRealized volatility measures the actual variability of an asset's price over a specified period.
- Risk Free RateThe risk free rate is a theoretical reference interest rate used in financial valuation models to represent the return on an investment with minimal assumed default risk over a relevant period. Option pricing models use an interest rate input as part of valuing future cash flows and exercise prices.
- Theoretical ValueStart hereTheoretical value is an estimate of what an option should be worth according to an option pricing model and its inputs.
- Time DecayStart hereTime decay describes the erosion of an option's extrinsic value as time passes, all else being equal.
- Time to ExpirationStart hereTime to expiration is the amount of time remaining before an option reaches expiration.
- Volatility PremiumVolatility premium is a broad term used to describe the additional value associated with volatility expectations or the difference between volatility priced by options and another volatility reference.
- Volatility Risk PremiumThe volatility risk premium refers to the tendency for the volatility implied by option prices to differ from subsequently realized volatility, with implied volatility often incorporating compensation for bearing volatility risk.
Options Fundamentals
- AssignmentStart hereAssignment occurs when an option seller is required to fulfil the contractual obligation associated with an exercised option.
- At the MoneyStart hereAn option is at the money when its strike price is at or very close to the current price of the underlying asset. Example AMZN ≈ $260 $260 option ≈ ATM
- Breakeven PriceStart hereBreakeven price is the underlying price at which an options position reaches a defined zero profit or loss point under specified assumptions. For a simple long call held to expiration: Breakeven = Strike Price + Premium Paid For a simple long put held to expiration: Breakeven = Strike Price − Premium Paid
- Call OptionStart hereA call option gives its buyer the right, but not the obligation, to buy the underlying asset at the option's strike price according to the contract's terms.
- Contract MultiplierStart hereThe contract multiplier determines how the quoted option value translates into the economic value of the contract. For standard US equity options, the multiplier is commonly 100 shares.
- ExerciseStart hereExercise is the process through which an option holder uses the contractual right provided by the option. For a call, this generally means exercising the right to buy the underlying according to the contract. For a put, it generally means exercising the right to sell.
- ExpirationStart hereExpiration is the point at which an option reaches the end of its contractual life and its remaining rights and obligations are determined according to the contract and applicable exercise and settlement procedures.
- Expiration DateStart hereThe expiration date is the date associated with the end of an option contract's life, subject to the contract's exercise and settlement rules.
- Extrinsic ValueStart hereExtrinsic value is the portion of an option's premium above its intrinsic value. In simplified form: Extrinsic Value = Option Premium − Intrinsic Value It reflects factors including remaining time and expected future volatility.
- In the MoneyStart hereAn option is in the money when it has intrinsic value based on the relationship between the underlying price and strike price. A call is in the money when the underlying price is above the strike. A put is in the money when the underlying price is below the strike. Example AMZN = $270 $260 Call = ITM $280 Call = OTM For puts: $280 Put = ITM $260 Put = OTM
- Intrinsic ValueStart hereIntrinsic value is the amount by which an option is currently in the money. For a call: Intrinsic Value = max(Underlying Price − Strike Price, 0) For a put: Intrinsic Value = max(Strike Price − Underlying Price, 0) Example AMZN = $280 $260 Call Intrinsic value: $280 − $260 = $20
- Long OptionStart hereA long option position exists when a trader owns an option contract. This could be: a long call or a long put.
- MoneynessStart hereMoneyness describes the relationship between an option's strike price and the price of its underlying asset. Options are commonly described as: In the Money At the Money or Out of the Money
- OptionStart hereAn option is a financial contract that gives its buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price under defined terms. The seller of the option takes on the corresponding obligation if the contract is exercised and assigned.
- Option BuyerStart hereThe option buyer is the party that pays the premium to acquire the rights provided by the option contract.
- Option ChainStart hereAn option chain is a listing of available option contracts for an underlying asset, typically organized by expiration date, strike price and option type. It can also display information such as: bid, ask, volume, open interest, implied volatility, and Greeks.
- Option ContractStart hereAn option contract defines the specific terms of an options position, including the underlying asset, option type, strike price and expiration. For standard US equity options, one contract generally represents 100 shares of the underlying stock, although contract specifications can differ.
- Option HolderThe holder is the party that owns the option contract and therefore holds the rights provided by it.
- Option PriceStart hereOption price is the market value at which an option contract is quoted or traded. It is commonly referred to as the option's premium.
- Option SellerStart hereThe option seller is the party that sells an option and receives the premium in exchange for taking on the contractual obligation associated with that option. Selling an option is also commonly called writing an option.
- Option WriterStart hereAn option writer is the party that sells or creates the short side of an option contract and assumes the corresponding contractual obligation.
- Out of the MoneyStart hereAn option is out of the money when it has no intrinsic value based on the current relationship between the underlying price and strike price. A call is OTM when the underlying trades below the strike. A put is OTM when the underlying trades above the strike.
- Put OptionStart hereA put option gives its buyer the right, but not the obligation, to sell the underlying asset at the option's strike price according to the contract's terms.
- Short OptionStart hereA short option position exists when a trader has sold an option and holds the corresponding obligation associated with that contract.
- Strike PriceStart hereThe strike price is the price specified in an option contract at which the underlying asset can be bought or sold if the option is exercised according to its terms. For a call, it is the price at which the holder has the right to buy. For a put, it is the price at which the holder has the right to sell.
- Time ValueStart hereTime value is a commonly used term for the portion of an option's premium associated with the possibility that its value may change before expiration. It is often used closely with the concept of extrinsic value.
Options Strategies
- Bear Call SpreadStart hereA bear call spread typically consists of: selling a lower strike call and buying a higher strike call with the same expiration. Market view Bearish to neutral.
- Bear Put SpreadStart hereA bear put spread typically consists of: buying a higher strike put and selling a lower strike put with the same expiration. Market view Moderately bearish.
- Bull Call SpreadStart hereA bull call spread typically consists of: buying a lower strike call and selling a higher strike call with the same expiration. Market view Moderately bullish.
- Bull Put SpreadStart hereA bull put spread typically consists of: selling a higher strike put and buying a lower strike put with the same expiration. Market view Bullish to neutral.
- Butterfly SpreadStart hereA butterfly spread is a multi leg strategy using options at three strike levels to create a defined payoff concentrated around a central region. Several variations exist.
- Buy WriteA buy write strategy involves buying the underlying asset and selling a call against it as part of the strategy.
- Calendar SpreadStart hereA calendar spread combines options on the same underlying and typically the same strike but with different expiration dates.
- Cash Secured PutStart hereA cash secured put involves selling a put while setting aside sufficient cash to meet the purchase obligation if assigned under the intended contract structure.
- CollarStart hereA collar typically combines: ownership of the underlying, a protective put, and a short call.
- Covered CallStart hereA covered call combines ownership of the underlying asset with a short call against that position. A common equity implementation is: Own 100 shares Sell 1 call where the contract multiplier corresponds to 100 shares.
- Credit SpreadStart hereA credit spread is an options spread established for a net premium received.
- Debit SpreadStart hereA debit spread is an options spread that requires a net premium payment to establish.
- Defined RiskStart hereDefined risk describes a position where the maximum potential loss can be determined in advance from the structure of the trade, subject to the contract functioning as intended and applicable execution and settlement mechanics.
- Diagonal SpreadStart hereA diagonal spread combines options with both: different strikes and different expiration dates.
- Iron ButterflyStart hereAn iron butterfly combines a short call and short put around the same central strike with protective option wings at lower and higher strikes. Market view Generally expects the underlying to remain relatively close to the central strike, depending on the specific trade thesis.
- Iron CondorStart hereAn iron condor combines a defined risk put spread and a defined risk call spread with the same expiration. A common short iron condor is constructed using: a long lower strike put, a short higher strike put, a short lower strike call, and a long higher strike call. Market view Generally neutral or range bound.
- Long Call ButterflyA standard long call butterfly with evenly spaced strikes consists of: buying one lower strike call, selling two middle strike calls, and buying one higher strike call, with the same expiration.
- Long StraddleStart hereA long straddle involves buying: a call and a put with the same strike and expiration. Market view The trader expects sufficiently large movement but may be uncertain about direction. Risk Maximum expiration loss is generally the total premium paid.
- Long StrangleStart hereA long strangle typically involves buying an OTM put and an OTM call with the same expiration. Market view The trader expects a sufficiently large move in either direction.
- Options SpreadStart hereAn options spread combines two or more option positions on the same underlying, typically using different strikes, expirations or both.
- Options StrategyStart hereAn options strategy is a position or combination of positions designed to create a particular exposure, payoff or risk profile. A strategy may contain: one option, multiple options, or options combined with the underlying asset.
- Payoff DiagramStart hereA payoff diagram visually represents how an options strategy's profit or loss changes across different underlying prices, usually at a specified point such as expiration.
- Poor Man's Covered CallA Poor Man's Covered Call is a commonly used name for a diagonal call strategy that uses a longer dated long call alongside a shorter dated short call rather than owning the underlying shares directly.
- Protective PutStart hereA protective put combines ownership of an underlying asset with a long put designed to limit downside below a specified level over the option's life.
- Put Call ParityStart herePut call parity describes a pricing relationship between European style calls and puts with the same strike and expiration, the underlying asset and the present value of the strike, under specified assumptions.
- Ratio SpreadA ratio spread uses unequal numbers of long and short option contracts within the strategy.
- Short StraddleStart hereA short straddle involves selling a call and put with the same strike and expiration. Market view The trader generally expects movement and/or volatility to be lower than what the position is effectively selling. Risk An uncovered short straddle can carry very substantial risk, including theoretically unlimited upside loss through the short call.
- Short StrangleStart hereA short strangle typically involves selling an OTM put and an OTM call with the same expiration. Market view The trader generally expects the underlying to remain within a sufficiently contained range and/or believes volatility is priced too high. Risk An uncovered short strangle carries substantial tail risk, including theoretically unlimited upside risk from the short call.
- StraddleStart hereA straddle combines a call and put with the same strike and expiration. It can be constructed either long or short.
- StrangleStart hereA strangle combines a call and put with different strike prices but the same expiration. It can be long or short.
- Synthetic Long StockA standard synthetic long stock position can be constructed using: long call short put at the same strike and expiration. Under the relevant assumptions, the combination creates a payoff closely related to long exposure to the underlying, with financing and carry considerations.
- Synthetic PositionStart hereA synthetic position uses combinations of options and, in some cases, the underlying to create an economic exposure resembling another position.
- Synthetic Short StockA standard synthetic short stock position can be constructed using: long put short call at the same strike and expiration. Its payoff resembles short underlying exposure under the relevant assumptions.
- Undefined RiskStart hereUndefined risk describes a position whose maximum potential loss is not capped at a predetermined amount by the option structure itself.
- Vertical SpreadStart hereA vertical spread combines options of the same type and expiration but with different strike prices.
Orders and Trade Execution
- Average Entry PriceStart hereAverage entry price is the weighted average price at which a position has been established through multiple executions or additions.
- Conditional OrderA conditional order is an instruction that becomes active only after specified conditions are met. Stop losses, take profit orders and certain trigger based entries are common examples.
- Entry PriceStart hereEntry price is the price at which a trader enters a position. If the position is built through several executions, the platform may instead display an average entry price.
- Execution PriceStart hereExecution price is the actual price at which an order, or part of an order, trades. It can differ from the price visible when the trader submitted the order.
- Exit PriceStart hereExit price is the price at which some or all of a trading position is closed. A position closed through several executions may have an average exit price.
- Fill or Kill (FOK)Fill or Kill, or FOK, instructs a platform to execute the entire order immediately or cancel it. The order should not remain open or be partially filled under the instruction.
- Good Till Canceled (GTC)Good Till Canceled, or GTC, is a time in force instruction that keeps an order active until it is filled, canceled or otherwise removed according to the platform's rules.
- Immediate or Cancel (IOC)Immediate or Cancel, or IOC, instructs the platform to execute as much of an order as possible immediately and cancel any remaining unfilled portion.
- Limit OrderStart hereA limit order instructs a trading platform to buy or sell at a specified price or better. Unlike a market order, it gives the trader control over the worst price they are willing to accept under the order's terms.
- Limit PriceStart hereThe limit price is the price specified by a trader when placing a limit order. It defines the price boundary at which the trader is willing to execute according to the order's direction and conditions.
- MakerStart hereA maker is a market participant whose order adds liquidity to an order book rather than immediately matching an existing order.
- Maker FeeStart hereA maker fee is the trading fee applied when an execution qualifies as adding liquidity to the market under the platform's rules.
- Market OrderStart hereA market order instructs the trading platform to execute immediately against the best available prices in the order book. It prioritizes execution rather than guaranteeing a specific price.
- Open OrderStart hereAn open order is an order that has been submitted but has not yet been completely filled or canceled. It remains capable of executing if its conditions are met.
- OrderStart hereAn order is an instruction submitted to a trading platform to buy, sell, open, reduce or close a position under specified conditions. Different order types determine when and how the platform attempts to execute that instruction.
- Order FillStart hereAn order fill occurs when some or all of an order is successfully matched and executed against another order in the market.
- Order TypeStart hereAn order type is the set of instructions that determines how a trading order should behave. Common examples include market orders, limit orders, stop orders and take profit orders.
- Partial FillStart hereA partial fill occurs when only part of an order is executed. The remaining quantity may stay open, be canceled or behave according to the order's settings.
- Post OnlyStart herePost only is an order instruction designed to ensure a limit order is added to the order book as maker liquidity rather than immediately executing against an existing order. If it would execute immediately, the platform will typically cancel or reject it according to its rules.
- Reduce OnlyStart hereReduce only is an order instruction designed to ensure an order only reduces or closes an existing position rather than increasing it or opening a new position in the opposite direction.
- Stop Limit OrderStart hereA stop limit order activates a limit order after a specified trigger condition is reached. The trader therefore sets both a trigger condition and a limit price.
- Stop LossStart hereA stop loss is a predefined exit instruction intended to reduce or close a position when the market reaches conditions that invalidate the trader's planned risk level. The actual execution depends on the order type and market conditions.
- Stop Market OrderStart hereA stop market order becomes a market order after its trigger condition is reached. Once activated, it attempts to execute against the available liquidity in the market.
- Stop OrderStart hereA stop order is an order that becomes active when a specified trigger condition is reached. Depending on the order type, it may then submit a market order, limit order or another instruction.
- Take Profit OrderStart hereA take profit order is an instruction designed to reduce or close a profitable position when specified price conditions are reached. Depending on the platform, it may execute as a market or limit order after being triggered.
- TakerStart hereA taker is a market participant whose order immediately executes against liquidity already available in the order book.
- Taker FeeStart hereA taker fee is the trading fee applied when an execution removes existing liquidity from the order book under the platform's rules.
- Time in ForceStart hereTime in force determines how long an order remains active and how it should behave if it cannot be filled immediately. Common instructions include Good Till Canceled, Immediate or Cancel and Fill or Kill.
- Trading FeeStart hereA trading fee is a charge associated with executing a trade on a trading platform. The amount can depend on factors such as order type, trading volume and whether the order provides or removes liquidity.
- Trailing StopStart hereA trailing stop is a dynamic stop instruction that adjusts as the market moves favorably by a specified distance or percentage. If the market subsequently reverses by the configured amount, the stop can be triggered.
- Trigger PriceStart hereA trigger price is the price level or reference that activates a conditional order when the platform's specified conditions are met. Depending on the exchange, traders may be able to select different reference prices, such as last price, mark price or index price.
Orders, Liquidity and Execution
- Ask SizeAsk size indicates the quantity displayed as available for sale at the current ask price.
- Average Fill PriceStart hereAverage fill price is the weighted average price at which an order executes when it receives multiple fills. Example You buy: 2 contracts at $5.00 3 contracts at $5.10 Average fill: (2 × $5.00 + 3 × $5.10) ÷ 5 = $5.06
- Bid SizeBid size indicates the quantity displayed as available to buy at the current bid price.
- Buy to CloseStart hereBuy to close is an instruction used to reduce or close an existing short options position by purchasing an offsetting option contract.
- Buy to OpenStart hereBuy to open is an instruction used to establish a new long options position by purchasing an option.
- Closing TransactionA closing transaction reduces or eliminates an existing options position. This can occur through: Sell to Close or Buy to Close.
- Credit OrderA credit order is an options order that results in the trader receiving a net premium when the position is established.
- Debit OrderA debit order is an options order that requires the trader to pay a net premium to establish the position.
- Mid PriceStart hereThe mid price is the price halfway between the current bid and ask. If: Bid = $4.80 Ask = $5.20 then: Mid = $5.00
- Multi Leg OrderStart hereA multi leg order combines two or more option positions into a single strategy order. Examples include: vertical spreads, straddles, strangles, iron condors, and calendar spreads.
- Natural PriceStart hereNatural price is commonly used to describe the immediately available side of the market for an options order. For a straightforward purchase, this is generally the ask. For a straightforward sale, this is generally the bid. For multi leg orders, the natural price reflects the relevant combination of quoted prices across the legs.
- Net CreditStart hereA net credit occurs when the total premium received from the legs of an options strategy exceeds the premium paid. Example Sell option: $6 Buy option: $2 Net credit: $4 With a 100 share multiplier: $400 before fees.
- Net DebitStart hereA net debit occurs when the total premium paid for the legs of an options strategy exceeds the premium received. Example Buy option: $6 Sell option: $2 Net debit: $4 With a 100 share multiplier: $400 before fees.
- Opening TransactionAn opening transaction establishes or increases an options position. This can occur through: Buy to Open or Sell to Open.
- Option LegStart hereA leg is one individual component of a multi position options strategy. Example A bull call spread contains two option legs: Buy one call and Sell another call at a different strike with the relevant strategy specifications.
- Option QuoteStart hereAn option quote displays current market information for an option contract, commonly including the bid, ask and associated sizes, alongside other data depending on the platform.
- Options LiquidityStart hereOptions liquidity refers specifically to the ease of trading individual option contracts or strategies at competitive prices.
- Options VolumeStart hereOptions volume measures trading activity in an option contract over a specified period.
- Per Contract FeeA per contract fee is a trading charge calculated according to the number of option contracts traded.
- Price ImprovementStart herePrice improvement occurs when an order executes at a better price than the relevant quoted price or the price the trader might otherwise have accepted.
- Sell to CloseStart hereSell to close is an instruction used to reduce or close an existing long options position by selling the option.
- Sell to OpenStart hereSell to open is an instruction used to establish a new short options position by selling an option.
- Transaction CostStart hereTransaction cost is the total economic cost associated with executing a trade. Depending on context, this can include explicit fees and implicit costs such as the bid ask spread and slippage.
- Volume vs Open InterestStart hereVolume versus open interest compares current trading activity with the number of outstanding contracts.
- Working an OrderWorking an order means actively managing a limit order rather than immediately accepting the available market price. A trader may begin with a more favorable limit and adjust it gradually if necessary.
Orders, Liquidity and Trading
- Closing a Prediction Market PositionStart hereClosing a prediction market position means reducing or removing exposure before the contract reaches final settlement. The exact mechanics depend on the platform and contract structure.
- Effective Entry PriceStart hereEffective entry price is the actual average economic price at which a position is established after considering how the order was executed and relevant trading costs.
- Exit LiquidityStart hereExit liquidity refers to the available market liquidity that allows a trader to reduce or close a position at a reasonable price.
- Liquidity Relative to Position SizeStart hereLiquidity relative to position size compares the size of a proposed trade with the amount of liquidity available in the market.
- Mark to MarketMark to market means valuing an open position using a current market based price rather than its original purchase price or eventual settlement value.
- NO PriceStart hereNO price is the current market price associated with the NO outcome of a prediction contract.
- Position LimitA position limit is a restriction on the amount of exposure a participant may hold in a particular market or contract under the applicable platform or regulatory rules.
- Prediction Market LiquidityStart herePrediction market liquidity describes how easily contracts can be bought or sold without causing a large change in price.
- Prediction Market PnLStart herePrediction market PnL measures the profit or loss generated by a prediction market position. PnL may be unrealized while the position remains open or realized after the position is closed or settled.
- Prediction Market PositionStart hereA prediction market position is a trader's financial exposure to a particular outcome. The position's value can change as the market reprices the probability of that outcome.
- Prediction Market SpreadStart hereA prediction market spread is the difference between the best available bid and ask prices for a contract.
- Prediction Market VolumeStart herePrediction market volume measures trading activity in a prediction market over a specified period or according to the platform's reporting methodology.
- Price ImpactStart herePrice impact is the change in market price caused by executing a trade, particularly when the order is large relative to available liquidity.
- Probability SpreadProbability spread describes the difference between the probabilities represented by available buying and selling prices in a prediction market.
- Thin MarketStart hereA thin market is a market with relatively limited liquidity or trading interest around the current price.
- Trading Before ResolutionStart hereTrading before resolution means buying or selling a prediction market position while the event remains unresolved.
- YES PriceStart hereYES price is the current market price associated with the YES outcome of a prediction contract. In a straightforward binary contract paying $1 if YES occurs, a YES price of $0.60 can be interpreted approximately as a 60% market implied probability before accounting for relevant market frictions.
Ownership and Legal Structure
- Bankruptcy EstateA bankruptcy estate generally refers to the assets and legal interests that become subject to an insolvency or bankruptcy process when a person or company fails. The exact treatment of assets depends on the applicable law and legal structure.
- Bankruptcy RemotenessBankruptcy remoteness refers to a legal structure designed to reduce the likelihood that assets held for investors become part of another company's bankruptcy proceedings. An SPV or similar structure may be used to separate particular assets from the wider business activities and liabilities of an originator or sponsor.
- Beneficial OwnershipStart hereBeneficial ownership means having the economic benefits or rights associated with an asset even when another person or legal entity is recorded as its legal owner. For example, an SPV may legally own a property while investors hold interests that give them certain economic rights connected to that property.
- Economic RightsEconomic rights are rights to receive financial benefits connected to an investment. These could include income, dividends, interest, distributions or a share of proceeds when an asset is sold.
- Governance RightsGovernance rights give investors or token holders the ability to participate in certain decisions relating to an asset, company, fund or protocol. These rights may include voting on specific proposals, appointing representatives or approving certain changes, depending on the structure.
- IssuerStart hereThe issuer is the legal entity responsible for issuing a financial instrument or token to investors. Depending on the structure, the issuer could be a company, fund, SPV, financial institution or another legally recognized entity.
- JurisdictionStart hereJurisdiction refers to the country, state, territory or legal system whose laws and regulatory authorities apply to a person, company, asset or transaction. An RWA structure may involve more than one jurisdiction.
- Legal OwnershipStart hereLegal ownership refers to the person or entity formally recognized by law as the owner of an asset. In an RWA structure, the legal owner might be the investor, but it could also be a company, trust, fund or Special Purpose Vehicle that holds the underlying asset on behalf of investors.
- Legal WrapperA legal wrapper is the legal structure used to connect an asset or investment with the rights represented by a token. This might involve a company, SPV, trust, fund or another legal arrangement.
- Ownership RightsStart hereOwnership rights are the legal rights associated with owning an asset or an interest in an asset. Depending on the structure, these may include rights to income, voting, sale proceeds, distributions or other economic benefits.
- SecurityStart hereA security is a financial instrument or investment that may represent ownership, debt, a financial claim or other investment rights. Shares and bonds are common examples, although the precise legal definition of a security varies between jurisdictions.
- Security TokenStart hereA security token is a digital token that represents a security or investment rights that are treated as securities under applicable law. It might represent shares, debt, interests in a fund or another regulated financial instrument.
- ShareholderA shareholder is a person or entity that owns shares in a company. Depending on the type of shares and the company's governing documents, shareholders may receive economic rights such as dividends and may also have voting or other ownership rights.
- Special Purpose Vehicle (SPV)Start hereA Special Purpose Vehicle, usually shortened to SPV, is a separate legal entity created for a specific purpose. In tokenization, an SPV may be established to own an underlying asset or hold certain rights connected to it. Investors then receive tokens or securities linked to interests in that structure rather than having the asset registered directly in their own names.
- Token HolderStart hereA token holder is a person or entity that holds a particular digital token. In an RWA structure, that token may represent ownership, economic rights, a financial claim, access rights or another type of interest depending on how the product is designed.
- Transfer RestrictionsStart hereTransfer restrictions are rules that limit who can receive, hold or trade an asset or token. Restrictions may arise from securities laws, investor eligibility requirements, sanctions controls, contractual agreements or the rules of a particular platform.
- Voting RightsVoting rights allow investors or owners to vote on certain decisions relating to a company, fund, asset or investment structure. The decisions investors can vote on depend on the rights attached to the investment.
Perpetual Futures Fundamentals
- Coin Margined ContractA coin margined contract uses a cryptocurrency such as BTC as margin and may settle profits and losses in that cryptocurrency. The exact mechanics depend on the contract and trading platform.
- Contract SizeStart hereContract size defines how much exposure one derivative contract represents. Depending on the market, one contract may represent a fixed quantity of an asset, a fixed monetary value or another amount specified by the exchange.
- Contract SpecificationStart hereA contract specification sets out the rules and characteristics of a derivative contract. It can include information such as contract size, margin asset, settlement currency, minimum order size, price increments, funding mechanics and other trading rules.
- DerivativeStart hereA derivative is a financial contract whose value is linked to, or derived from, another asset, price, rate or financial reference. Futures, perpetual futures and options are all examples of derivatives.
- Directional ExposureDirectional exposure describes how a position is affected by the direction in which a market moves. A long perpetual position generally has positive exposure to rising prices, while a short position generally has exposure that benefits from falling prices.
- ExpiryStart hereExpiry is the date or time when a derivative contract reaches the end of its contractual life or enters its specified settlement process. Traditional futures and options commonly have expiry dates. Perpetual futures do not have a fixed expiry date.
- ExposureStart hereExposure describes how much an investment or trading position is affected by movements in a particular market, asset or source of risk. In perpetual futures, leverage can create market exposure significantly larger than the amount of capital committed as margin.
- Futures ContractStart hereA futures contract is a derivative agreement linked to an underlying asset or reference price, with terms specifying how the contract is settled. Traditional futures contracts generally have specified expiration or settlement dates.
- Futures MarketStart hereA futures market is a market where participants trade derivative contracts linked to an underlying asset, price or financial reference. Futures markets can include contracts with fixed expiry dates as well as perpetual futures markets without a fixed expiry.
- Inverse ContractAn inverse contract is a derivative structure in which the contract's value, margin or settlement mechanics are denominated differently from a conventional linear contract and commonly involve the underlying cryptocurrency itself. The exact calculation depends on the exchange and contract specification.
- LeverageStart hereLeverage allows a trader to control a larger market position using a smaller amount of capital as margin. For example, $1,000 of margin supporting a $5,000 position represents approximately 5× leverage on that capital.
- Linear ContractStart hereA linear contract is a derivative contract where profit and loss generally change in a straightforward relationship with movements in the underlying price and contract size. In crypto perpetual markets, linear contracts are commonly margined and settled using a stablecoin or other quote currency.
- Long PositionStart hereA long position is a position that generally benefits when the price of the market being traded rises and loses value when the price falls. In perpetual futures, a trader can open a long position without necessarily buying or owning the underlying asset.
- Notional ValueStart hereNotional value is the total value of the market exposure represented by a derivative position. For example, a perpetual position controlling $10,000 worth of BTC exposure has a notional value of approximately $10,000, even if the trader used much less capital as margin.
- Perpetual ContractStart hereA perpetual contract is a derivative contract with no fixed expiry date that is designed to track the price of an underlying asset. The term is generally used interchangeably with perpetual futures or perps.
- Perpetual FuturesStart herePerpetual futures, commonly called perps, are derivative contracts that allow traders to speculate on the price of an underlying asset without an expiry date. Unlike traditional futures contracts, which settle or expire on a specified date, perpetual futures can remain open for as long as the trader maintains the position and meets the platform's margin requirements.
- PerpsStart herePerps is the commonly used shorthand for perpetual futures or perpetual contracts. They are derivative contracts that track an underlying market and have no fixed expiry date.
- PnLStart herePnL means profit and loss. It describes how much money a trading position or account has gained or lost. PnL may be unrealized while a position remains open or realized when profit or loss is locked in according to the platform's accounting rules.
- PositionStart hereA position is a trader's active financial exposure to a market. In perpetual futures, a position can be long or short and has characteristics such as size, entry price, leverage, margin and unrealized profit or loss.
- Position SizeStart herePosition size is the total amount of market exposure represented by a trade. Depending on the platform and contract, it may be displayed in units of the underlying asset, number of contracts or monetary value.
- Short PositionStart hereA short position is a position that generally benefits when the price of the market being traded falls and loses value when the price rises. Perpetual futures make it possible to take short exposure through the contract without first owning the underlying asset.
- Spot MarketStart hereA spot market is a market where an asset is bought or sold for direct ownership or delivery according to the market's settlement arrangements. In crypto, buying BTC on a spot market generally means acquiring Bitcoin itself rather than a derivative contract linked to its price.
- USDT Margined ContractA USDT margined contract is a derivative contract that uses USDT as the asset for margin and typically for calculating and settling profit and loss. Many crypto perpetual futures markets use this structure.
Prediction Market Fundamentals
- Binary MarketStart hereA binary market is a prediction market with two mutually exclusive outcomes, commonly expressed as YES and NO. For example: Will the Federal Reserve cut interest rates at its next meeting? YES or NO.
- Complementary OutcomesComplementary outcomes are two outcomes where one occurs if and only if the other does not, assuming the market's rules cover all possible results. In a straightforward binary market, YES and NO are complementary outcomes.
- Contract PriceStart hereContract price is the amount paid or received to trade a prediction contract. The way prices are displayed depends on the platform and market structure.
- Event ContractStart hereAn event contract is a contract whose payout depends on the outcome of a specified event or condition. The market rules define what must happen for the contract to settle in a particular way.
- Hold to ResolutionStart hereHolding to resolution means keeping a prediction market position open until the market outcome is officially determined and the contract settles.
- Implied ProbabilityStart hereImplied probability is the probability suggested by a prediction market's price under the relevant contract and payout structure. For a binary contract that pays $1 if the outcome occurs: $0.63 ≈ 63% implied probability before considering market frictions and structural details.
- Market CloseStart hereMarket close is the point at which trading in a prediction market stops according to the market or platform rules.
- Market ConsensusStart hereMarket consensus describes the collective view reflected by current prediction market pricing.
- Market ExpiryStart hereMarket expiry refers to the point or date associated with the end of a prediction market's defined trading or event period. The precise meaning can vary according to the market's rules and platform terminology.
- Market PriceStart hereMarket price is the current price at which a prediction contract is trading or available to trade. In prediction markets with binary contracts whose payout structure supports probability style interpretation, price is commonly expressed as a monetary amount or equivalent percentage.
- Market ProbabilityStart hereMarket probability is the probability implied or communicated by the current price of a prediction market, subject to the market's contract structure.
- Market QuestionStart hereThe market question is the specific event or condition a prediction market asks participants to trade.
- Market RepricingStart hereMarket repricing occurs when prediction market prices change as traders respond to new information, changing expectations or shifts in supply and demand.
- Market ResolutionStart hereMarket resolution is the process of determining the official outcome of a prediction market according to its predefined rules and resolution criteria.
- Market RulesStart hereMarket rules define how a prediction market operates and the conditions used to determine its outcome. They may specify dates, definitions, data sources, settlement conditions and other requirements.
- Multi Outcome MarketStart hereA multi outcome market offers more than two possible outcomes for the same underlying question or event. For example: Who will become the next Federal Reserve Chair? The market may offer several possible candidates.
- Mutually Exclusive OutcomesStart hereMutually exclusive outcomes are outcomes that cannot both occur under the market's resolution rules.
- NO ContractStart hereA NO contract represents the position that the event described by a binary prediction market will resolve NO according to the market's rules.
- OutcomeStart hereAn outcome is one of the possible results represented by a prediction market. In a binary market, the outcome may simply be YES or NO. Markets with several possible outcomes can offer separate contracts or choices representing different results.
- PayoutStart herePayout is the amount received from a prediction contract according to its settlement rules when the relevant outcome occurs.
- Prediction ContractStart hereA prediction contract is a tradable contract whose value depends on whether a specified future outcome occurs. Depending on the market structure, the contract may settle at a predefined value if the outcome occurs and another value if it does not.
- Prediction MarketStart hereA prediction market is a market where participants trade contracts linked to the outcome of a future event. Markets can cover elections, economic decisions, financial markets, crypto, business, technology, geopolitics and major world events. Prices change as participants buy and sell based on their expectations of what will happen.
- Prediction Market OddsStart herePrediction market odds describe the likelihood of an outcome as reflected by market pricing. On GnosisFi and many prediction market interfaces, this may be displayed as a percentage such as 35%, 63% or 82%.
- Settlement ValueStart hereSettlement value is the amount assigned to a prediction contract when the market is resolved. In a common binary structure, the winning outcome settles at $1 and the losing outcome at $0. Other contract structures may use different values.
- Trading Prediction MarketsStart hereTrading prediction markets means buying and selling positions based on how the trader expects the market's probability estimate to change or how they expect the event ultimately to resolve.
- YES ContractStart hereA YES contract represents the position that the event described by a binary prediction market will resolve YES according to the market's rules.
Prices, Indexes and Funding
- Annualized Funding RateAn annualized funding rate expresses a periodic perpetual futures funding rate as an estimated annual rate. It makes funding levels with different intervals easier to compare.
- BasisStart hereBasis is the difference between the price of a derivative contract and the price of its underlying or reference market. The exact convention used to express basis can vary depending on the market and platform.
- Funding ArbitrageFunding arbitrage is a strategy that attempts to capture funding payments while reducing some of the directional price exposure of a perpetual futures position. A common structure involves holding opposing exposure in spot and perpetual markets, although the exact strategy can vary.
- Funding IntervalStart hereThe funding interval is the period between scheduled funding events in a perpetual futures market. The interval varies by exchange and contract.
- Funding PaymentStart hereA funding payment is the amount transferred between eligible long and short perpetual futures positions at a funding event. It is calculated using the applicable funding rate and the position according to the contract's rules.
- Funding RateStart hereThe funding rate is a periodic rate used to calculate funding payments between traders in many perpetual futures markets. Funding is one of the mechanisms used to encourage the perpetual contract's price to remain reasonably aligned with the underlying market.
- Funding TimestampA funding timestamp is the scheduled time at which a perpetual futures platform applies or settles a funding payment for eligible open positions.
- Futures BasisFutures basis is the difference between the price of a futures contract and the relevant spot or underlying reference price. For dated futures, this difference can reflect factors such as time to expiry, financing conditions and market expectations.
- Index PriceStart hereAn index price is a reference price designed to represent the broader market value of an underlying asset. For crypto perpetual futures, it is commonly calculated using prices from one or more underlying spot markets rather than relying solely on the perp's own trading price.
- Last PriceStart hereThe last price is the price at which the most recent trade in a market was executed. It changes whenever a new trade occurs.
- Mark PriceStart hereThe mark price is a reference price used by many perpetual futures platforms to calculate unrealized profit and loss and determine whether positions meet liquidation requirements. Its exact calculation varies by platform, but it is generally designed to provide a more stable reference than simply using the most recent trade.
- Negative FundingStart hereNegative funding describes a funding rate below zero. In the common perpetual futures model, traders holding short positions pay traders holding long positions when funding is negative.
- Oracle PriceStart hereAn oracle price is market price data supplied to a blockchain based application or trading protocol by an oracle system. It allows smart contracts to use information about asset prices that originates outside the application itself.
- Perpetual PriceStart hereThe perpetual price is the market price at which a perpetual futures contract is trading. It is determined by buyers and sellers in the perpetual market and can trade slightly above or below the underlying spot or index price.
- Positive FundingStart herePositive funding describes a funding rate above zero. In the common perpetual futures model, traders holding long positions pay traders holding short positions when funding is positive.
- Predicted Funding RateA predicted funding rate is an estimate of the funding rate expected to apply at an upcoming funding event. It can change before the funding timestamp as market conditions change.
- Premium IndexStart hereA premium index is a measure used by some perpetual futures platforms to help determine how far the perpetual contract is trading above or below its underlying reference price. The exact formula varies between platforms and can be an input into funding rate calculations.
- Spot IndexA spot index is a reference price constructed from prices in underlying spot markets. Depending on the platform, it may combine data from several exchanges using a specified methodology.
- Spot PriceStart hereThe spot price is the current market price of an asset for transactions in the spot market. It represents the price of the underlying asset itself rather than the price of a derivative linked to it.
Probability, Pricing and Expected Value
- Base RateStart hereA base rate is the historical or general frequency with which a type of event occurs before considering the specific details of the current case.
- Base Rate NeglectBase rate neglect occurs when someone focuses heavily on the specific details of a situation while giving insufficient weight to how frequently similar events occur historically.
- Bayesian UpdatingBayesian updating is the process of revising an existing probability estimate as new evidence becomes available. In formal statistics it can be expressed mathematically, but prediction traders can also apply the principle conceptually.
- CalibrationStart hereCalibration measures whether probability forecasts correspond reasonably well with how often those outcomes actually occur over many forecasts.
- Conditional ProbabilityStart hereConditional probability is the probability of one event occurring given that another event has occurred or condition is known.
- Confidence RangeStart hereA confidence range is a practical range of probabilities a forecaster considers plausible for an outcome rather than pretending one precise estimate is unquestionably correct.
- EdgeStart hereAn edge is an advantage that gives a trader reason to believe a market is priced differently from its true probability or expected value.
- Expected ValueStart hereExpected value, often abbreviated EV, estimates the average value of a decision if the same type of situation could be repeated many times under the assumed probabilities and payouts. A simplified calculation is: EV = (Probability of Win × Amount Won) − (Probability of Loss × Amount Lost)
- Fair ProbabilityStart hereFair probability is the probability a trader believes most accurately reflects the likelihood of an outcome after considering the available evidence.
- Margin of SafetyIn prediction market trading, a margin of safety is the buffer a trader requires between the market price and their estimated fair value before considering a trade attractive.
- Minimum EdgeMinimum edge is the smallest difference between a trader's estimated fair probability and the market price that the trader requires before considering a position.
- MispricingStart hereMispricing occurs when a prediction contract's market price differs meaningfully from what a trader believes is its fair value.
- Negative Expected Value (−EV)Start hereNegative expected value describes a decision whose probability weighted expected return is lower than its cost under the assumptions being used. It is commonly shortened to −EV.
- OverconfidenceStart hereOverconfidence occurs when a trader has greater confidence in their judgement or probability estimate than the available evidence justifies.
- Positive Expected Value (+EV)Start herePositive expected value describes a decision whose probability weighted expected return is greater than its cost under the assumptions being used. It is commonly shortened to +EV.
- Posterior ProbabilityPosterior probability is the revised probability assigned to an outcome after new evidence has been incorporated into the previous estimate.
- Prior ProbabilityStart herePrior probability is the probability assigned to an outcome before incorporating a new piece of information or evidence.
- ProbabilityStart hereProbability measures how likely an outcome is considered to be, usually expressed between 0% and 100%. A probability of 0% represents an outcome considered impossible under the assumptions being used, while 100% represents certainty.
- Probability EdgeStart hereProbability edge is the difference between a trader's estimated probability and the probability implied by the market. For example: Market: 55% Trader estimate: 65% Probability edge: 10 percentage points before considering costs, uncertainty in the estimate and other risks.
- Probability EstimateStart hereA probability estimate is your assessment of how likely an outcome is to occur based on the information, evidence and reasoning available to you.
- Probability UpdateStart hereA probability update is a change to an existing probability estimate after receiving new information.
- Reference ClassA reference class is a group of comparable historical situations used to help estimate the probability of a current event.
- Subjective ProbabilitySubjective probability is a probability assigned to an outcome based on an individual's assessment of the available evidence rather than solely on a fixed statistical frequency.
- UncertaintyStart hereUncertainty describes the fact that the future outcome is not known and that probability estimates themselves may also be imperfect.
Research, Information and Trading Edge
- Alternative DataAlternative data is information used to analyze an event that comes from sources outside the most conventional datasets or reports. Depending on the market, this could include publicly available digital activity, transaction data, shipping information, search trends or other nontraditional datasets.
- Anchoring BiasStart hereAnchoring bias occurs when a trader relies too heavily on an initial number, belief or probability when evaluating new information.
- Breaking NewsStart hereBreaking news is newly reported information that may materially affect the probability of an unresolved event.
- Confirmation BiasStart hereConfirmation bias is the tendency to favor information that supports an existing belief while giving less weight to evidence that challenges it.
- Consensus ForecastA consensus forecast is an estimate created by combining or summarizing forecasts from multiple analysts, economists, models or other forecasters.
- Crowd WisdomCrowd wisdom describes the idea that combining information and judgements from many participants can sometimes produce estimates that are more accurate than those of individual participants.
- Data EdgeStart hereA data edge is an advantage created by using relevant data more effectively than the broader market.
- Forecast ModelA forecast model is a structured method for using data and assumptions to estimate the probability or future value of an outcome. Models may range from relatively straightforward statistical approaches to more complex systems.
- HerdingHerding occurs when participants follow the actions or beliefs of others rather than independently evaluating the available evidence.
- Information AdvantageStart hereAn information advantage exists when a trader possesses or develops information relevant to an outcome that is not yet fully reflected in the market price.
- Information EdgeStart hereAn information edge exists when a trader has access to relevant information, research or analysis that allows them to estimate an outcome more accurately than the market currently does.
- Information LagStart hereInformation lag is the period between relevant information becoming available and that information being fully reflected in market prices.
- Information QualityStart hereInformation quality describes how reliable, relevant, timely and useful a piece of information is for evaluating an outcome.
- Market EfficiencyStart hereMarket efficiency describes the extent to which available information is reflected in market prices.
- Market InefficiencyStart hereMarket inefficiency describes a situation where available information or reasonable probability estimates may not be fully reflected in market prices.
- Market ReactionStart hereMarket reaction is the change in price or trading activity that follows new information or changing expectations.
- NarrativeA narrative is a widely shared explanation or story used to make sense of events and expectations.
- NoiseStart hereNoise is information or market activity that appears meaningful but provides little useful evidence about the true probability of an outcome.
- Price DiscoveryStart herePrice discovery is the process through which buying and selling help establish the market price of an asset or contract. In prediction markets, this process can produce a changing market estimate of an outcome's probability.
- Priced InStart herePriced in means information or expectations are already substantially reflected in the current market price.
- Primary SourceStart hereA primary source is original information produced directly by the organization, person, authority or dataset relevant to the event being researched. Examples can include: official government releases, company filings, court documents, regulatory announcements, central bank statements, official election results, or original datasets.
- Recency BiasStart hereRecency bias is the tendency to give disproportionate importance to recent information or events.
- Research EdgeStart hereA research edge is an advantage created by finding, verifying or analyzing relevant information more effectively than other market participants.
- RumourStart hereA rumour is information circulating without sufficient confirmation from reliable sources.
- Secondary SourceStart hereA secondary source interprets, reports or analyzes information originating elsewhere. Examples include news reports, research articles, analyst commentary and social media summaries.
- SignalStart hereA signal is information that genuinely improves understanding of an outcome or helps produce a better probability estimate.
- Source VerificationStart hereSource verification is the process of checking whether information is authentic, current and accurately represented before using it in a probability estimate.
- Timing EdgeStart hereA timing edge exists when a trader identifies and correctly interprets relevant information before it is fully reflected in the market price.
Risk
- Concentration RiskConcentration risk arises when too much of an investment, portfolio or financial structure depends on a small number of assets, borrowers, issuers, sectors, locations or service providers. This can make losses from a single problem disproportionately large.
- CounterpartyStart hereA counterparty is another person or organization involved in a financial transaction, contract or agreement. Depending on the investment, counterparties might include borrowers, issuers, banks, custodians, brokers or trading partners.
- Counterparty RiskStart hereCounterparty risk is the risk that another person or organization involved in a financial agreement fails to meet its obligations. A counterparty could be a borrower, issuer, bank, custodian, trading partner or another entity involved in an investment.
- Credit RiskStart hereCredit risk is the risk that a borrower or other party responsible for making financial payments fails to meet its obligations in full or on time. It is fundamental to bonds, loans, private credit and many other debt investments.
- Currency RiskCurrency risk is the risk that changes in exchange rates affect the value or returns of an investment when measured in the investor's own currency. It is also called foreign exchange risk or FX risk.
- Custody RiskStart hereCustody risk is the risk of loss, restricted access or other problems arising from how assets are safeguarded or controlled. It can affect traditional assets, physical assets and blockchain based assets.
- Cybersecurity RiskStart hereCybersecurity risk is the risk of loss, disruption or unauthorized access resulting from attacks or security failures affecting digital systems. This can involve accounts, wallets, service providers, platforms or other technology used within an investment structure.
- Default RiskStart hereDefault risk is the risk that a borrower or issuer fails to make required payments or otherwise meet the financial obligations of a debt agreement. A default can involve missed interest payments, failure to repay principal or other breaches defined by the agreement.
- DiversificationStart hereDiversification is the practice of spreading investments across different assets, issuers, borrowers, sectors, regions or other sources of risk rather than relying heavily on one exposure. The objective is to reduce the impact that a problem with any single investment can have on the overall portfolio.
- Interest Rate RiskStart hereInterest rate risk is the risk that changes in market interest rates affect the value or attractiveness of an investment. It is particularly important for bonds and other fixed income assets.
- Issuer RiskStart hereIssuer risk is the risk associated with the entity responsible for issuing a financial instrument or token. Problems may arise if the issuer becomes insolvent, fails to meet its obligations, operates improperly or cannot continue supporting the investment structure.
- Legal RiskStart hereLegal risk is the risk that an investment, contract, ownership arrangement or financial structure does not operate legally in the way participants expect. This can result from unclear rights, unenforceable agreements, legal disputes or conflicts between different legal systems.
- Liquidity RiskStart hereLiquidity risk is the risk that an investor cannot buy or sell an asset when desired without accepting a significantly worse price or waiting longer than expected. It is particularly relevant to assets with limited trading activity or few potential buyers.
- Market RiskStart hereMarket risk is the risk of investment losses caused by changes in market prices or broader market conditions. Interest rates, equity prices, commodity prices, currencies and other market variables can all affect investment values.
- Operational RiskOperational risk is the risk of loss or disruption caused by failures in processes, people, systems or external operational arrangements. Examples can include processing errors, system failures, inadequate controls or problems involving service providers.
- Oracle RiskOracle risk is the risk that external information supplied to a blockchain application is incorrect, delayed, manipulated or unavailable. Smart contracts may depend on oracles for information they cannot obtain directly from the blockchain.
- Platform RiskPlatform risk is the risk associated with relying on a particular platform to access, trade, manage or redeem an investment. Problems can include operational failures, restricted access, insolvency, security incidents or the loss of important services.
- Recovery RateRecovery rate is the proportion of money that creditors ultimately recover after a borrower defaults. The amount recovered can depend on collateral, seniority, legal proceedings, asset values and other factors.
- Redemption RiskStart hereRedemption risk is the risk that an investor cannot redeem an investment for its expected value, at the expected time or under the expected conditions. Redemption may be affected by liquidity, product rules, market disruption or problems involving the issuer or underlying assets.
- Regulatory RiskStart hereRegulatory risk is the risk that laws, regulations, regulatory interpretations or enforcement actions affect an investment, business or market. The impact can differ significantly between jurisdictions.
- Smart Contract RiskStart hereSmart contract risk is the risk that software used to operate a blockchain based application contains errors, vulnerabilities or behaves in an unintended way. Problems can arise from the code itself, its configuration or the way it interacts with other systems.
- Technology RiskStart hereTechnology risk is the risk that technological systems fail, become unavailable, are compromised or do not operate as intended. For RWAs, this can involve blockchain networks, wallets, smart contracts, APIs, custody systems or other digital infrastructure.
- Valuation RiskStart hereValuation risk is the risk that an asset's reported or estimated value does not accurately reflect the price that could realistically be obtained for it. This is particularly relevant to assets that trade infrequently or depend on models and appraisals.
Risk, Position Management and Market Behavior
- Asymmetric PayoffStart hereAn asymmetric payoff occurs when the potential gain and potential loss on a trade are materially different.
- Capital at RiskStart hereCapital at risk is the amount of money exposed to potential loss in a trade or group of trades.
- ChasingChasing occurs when a trader enters after a substantial price move primarily because they fear missing further movement rather than because the current price still offers value.
- Concentrated Event RiskStart hereConcentrated event risk occurs when a large portion of a trader's portfolio depends directly or indirectly on the same event, assumption or catalyst.
- ConvictionConviction describes the strength of a trader's belief in their analysis or probability estimate.
- Correlated MarketsStart hereCorrelated markets are prediction markets whose probabilities or outcomes may be influenced by the same underlying events, information or conditions.
- Decision QualityStart hereDecision quality describes how sound a trading decision was based on the information, probabilities, price and risks available at the time it was made.
- Early ExitStart hereAn early exit occurs when a trader closes a prediction market position before final resolution.
- Edge DecayStart hereEdge decay describes the reduction or disappearance of a trading advantage as market prices change or new information becomes incorporated.
- Estimation ErrorStart hereEstimation error is the difference between a probability estimate and the underlying probability it is attempting to represent. Because the true probability of a unique future event is generally not directly observable beforehand, traders need to account for uncertainty in their estimates.
- Event ExposureStart hereEvent exposure is the amount of portfolio risk ultimately dependent on a particular real world event or outcome.
- FOMOFOMO, or fear of missing out, is the urge to enter a trade because the price is moving quickly or other traders appear to be profiting.
- Hold to Resolution RiskStart hereHold to resolution risk is the additional uncertainty a trader accepts by keeping a prediction market position open until the market reaches its final outcome.
- Longshot BiasLongshot bias describes a tendency for market participants in some forecasting or wagering environments to overvalue low probability outcomes relative to their underlying likelihood.
- Loss AversionStart hereLoss aversion describes the tendency for losses to feel disproportionately painful relative to equivalent gains.
- Maximum LossStart hereMaximum loss is the greatest amount a trader could lose on a position under the applicable contract structure, excluding circumstances outside the assumed market mechanics.
- Maximum PayoutStart hereMaximum payout is the highest settlement value a contract can produce under its stated terms.
- Outcome BiasStart hereOutcome bias is the tendency to judge the quality of a decision mainly by what happened afterward rather than by the information and reasoning available when the decision was made.
- Prediction Market RiskStart herePrediction market risk is the possibility of losing money or experiencing an unexpected outcome when trading contracts linked to future events. Risk can come from the event itself, an inaccurate probability estimate, poor execution, insufficient liquidity, unexpected information, resolution uncertainty or the platform being used.
- Probability CompressionProbability compression describes a situation where the gap between a trader's fair probability estimate and the market's implied probability narrows as the market reprices.
- Probability InvalidationStart hereProbability invalidation occurs when new information materially undermines the assumptions supporting a trader's previous probability estimate.
- Probability RiskStart hereProbability risk is the risk that your estimate of an event's likelihood is inaccurate.
- Related MarketsStart hereRelated markets are prediction contracts whose questions, probabilities or outcomes have a meaningful relationship with one another.
- ResultingResulting is the habit of judging whether a decision was good or bad primarily from its eventual outcome.
- Sunk Cost BiasStart hereSunk cost bias is the tendency to continue with a position because money, time or effort has already been committed, even when the current evidence no longer supports the decision.
- Taking Profit Before ResolutionTaking profit before resolution means reducing or closing a profitable prediction market position before the event's final outcome is determined.
- ThesisStart hereA trading thesis is the reasoning behind a position, including why a trader believes the market probability differs from fair probability.
- Thesis DriftStart hereThesis drift occurs when a trader gradually changes the reasoning for holding a position after the original reason for entering has weakened or disappeared.
Risk, Position Sizing and Trade Management
- Account RiskStart hereAccount risk describes how much of a trader's account is exposed to potential loss from one trade, several trades or the portfolio as a whole.
- Averaging DownStart hereAveraging down means adding to a position after its price has fallen, thereby reducing the average entry price.
- Basis RiskBasis risk is the risk that the instrument used to hedge an exposure does not move closely enough with the exposure being hedged.
- Break Even PriceStart hereBreak even price is the price at which a position produces neither a net profit nor a net loss under the calculation being used. Depending on context, fees, funding and other costs may affect the true economic break even point.
- Break Even StopStart hereA break even stop is a stop loss moved toward the trade's entry or economic break even area after the position has moved favorably.
- Buying Power ReductionStart hereBuying power reduction is the amount by which opening or maintaining a position reduces the account's available buying power under the broker's methodology.
- Closing Before ExpirationStart hereClosing before expiration means exiting an options position through an offsetting transaction before the contract reaches expiration.
- Contract RiskStart hereContract risk is the amount of potential loss associated with an individual option contract or one unit of an options strategy under the trader's defined risk assumptions.
- CorrelationStart hereCorrelation describes the degree to which two assets, markets or variables tend to move in relation to one another over a measured period. Positive correlation means they tend to move in the same direction, while negative correlation means they tend to move in opposite directions. Correlation can change over time.
- Covered OptionStart hereA covered option is a short option position where another holding or position provides the specified coverage for the option obligation. A classic example is a short call covered by ownership of the underlying shares.
- Cutting LossesStart hereCutting losses means reducing or closing a losing position when the trader's risk limit, invalidation condition or trade plan indicates that the position should no longer be held.
- DrawdownStart hereDrawdown measures a decline in account or portfolio value from a previous peak. It is commonly expressed as a percentage.
- Equity CurveStart hereAn equity curve is a visual representation of how a trading account's value changes over time.
- Event RiskStart hereEvent risk is the possibility that a known or unexpected event causes a significant change in price, volatility or market conditions.
- ExpectancyStart hereTrading expectancy is the average amount a trading approach is expected to gain or lose per trade based on its historical or assumed win rate and the size of its wins and losses. A simplified form is: Expectancy = (Win Rate × Average Win) − (Loss Rate × Average Loss)
- Expiration ConcentrationStart hereExpiration concentration occurs when a significant portion of an options portfolio expires within the same narrow time window.
- Gap RiskStart hereGap risk is the risk that an asset moves sharply from one price level to another with little or no opportunity to trade at prices in between.
- HedgeStart hereA hedge is a position or strategy designed to reduce exposure to a particular market risk.
- HedgingStart hereHedging is the process of using another position or financial instrument to reduce exposure to a particular risk.
- Loss StreakStart hereA loss streak is a sequence of consecutive losing trades.
- Maximum Account RiskStart hereMaximum account risk is a predefined limit on the amount of trading capital a trader is willing to expose to potential loss across open positions.
- Maximum DrawdownStart hereMaximum drawdown is the largest observed decline from a peak to a subsequent trough over the period being measured.
- Maximum ProfitStart hereMaximum profit is the greatest profit a position can produce under its defined payoff structure, where such a maximum exists.
- Naked OptionStart hereA naked option generally refers to a short option position that is not covered by the underlying asset or another position that fully defines the relevant risk.
- Options ExposureStart hereOptions exposure describes the economic sensitivities and risks created by options positions across an account or portfolio.
- Options MarginStart hereOptions margin refers to collateral or account requirements associated with certain options positions, particularly positions involving short options.
- Overnight RiskStart hereOvernight risk is the risk created by holding a position while the relevant market is closed or liquidity is materially reduced.
- Partial CloseA partial close reduces only part of an existing position while leaving the remaining exposure open.
- Planned LossStart herePlanned loss is the amount a trader intends to risk on a trade according to their trade plan, which may be lower than the position's theoretical maximum loss.
- Portfolio RiskStart herePortfolio risk is the combined risk created by all positions held within a trading portfolio. It considers more than the risk of each trade individually because positions can share similar market exposure.
- Position AdjustmentStart hereA position adjustment changes an existing options position in response to changes in the market, risk or trade thesis. An adjustment may involve: closing a leg, adding a leg, rolling, reducing size, adding a hedge, or restructuring the position.
- Position Size FormulaStart hereA position size formula calculates an appropriate position size from the amount a trader intends to risk and the distance between entry and stop. A simplified percentage based version is: Position Size ≈ Amount at Risk ÷ Stop Distance % The exact calculation depends on the instrument and contract structure.
- Position SizingStart herePosition sizing is the process of determining how large a trading position should be based on factors such as account size, intended risk and the distance between entry and the planned exit if the trade is wrong.
- Probability of ProfitStart hereProbability of profit is an estimate of the probability that an options position will satisfy a specified profitability condition under the model and assumptions used.
- Probability of TouchProbability of touch is a model based estimate of the probability that the underlying price will reach a specified price level at some point before expiration.
- R MultipleStart hereAn R multiple expresses the result of a trade relative to the amount initially defined as risk. If the planned risk is $100: A $100 loss = −1R A $200 gain = +2R A $300 gain = +3R
- Risk BudgetA risk budget is the amount of risk a trader allocates across individual trades, strategies or areas of a portfolio.
- Risk ManagementStart hereRisk management is the process of controlling how much capital is exposed to potential loss and deciding in advance how trading risk will be handled. It includes position sizing, stop placement, risk per trade, total account exposure and managing multiple positions together.
- Risk of RuinStart hereRisk of ruin describes the possibility that trading losses reduce capital so severely that a trader can no longer continue the strategy effectively or recover under the assumed trading process.
- Risk Per TradeStart hereRisk per trade is the amount or percentage of trading capital a trader intends to lose if a trade reaches its predefined invalidation or stop level.
- Risk Reward RatioStart hereRisk reward ratio compares the amount a trader plans to risk with the potential reward if a trade reaches its intended target. For example, risking $100 for a potential $300 gain represents a risk reward relationship of 1:3.
- Roll DownStart hereRolling down means moving an options position to a lower strike while closing the existing position and opening the replacement.
- Roll Down and OutRolling down and out means moving an options position to: a lower strike and a later expiration.
- Roll OutStart hereRolling out means closing an option position and opening another with a later expiration, generally while maintaining the same or a related strike structure.
- Roll UpStart hereRolling up means moving an options position to a higher strike while closing the existing position and opening the replacement.
- Roll Up and OutRolling up and out means moving an options position to: a higher strike and a later expiration.
- Rolling an OptionStart hereRolling an option involves closing an existing option position and opening another option position with a different strike, expiration or both.
- Rolling for a CreditRolling for a credit means the closing and replacement transactions produce a net credit for the roll itself.
- Rolling for a DebitRolling for a debit means the closing and replacement transactions require an additional net payment.
- Scaling InScaling in means building a position through multiple entries rather than entering the entire intended position at once.
- Scaling OutScaling out means reducing a position gradually through multiple exits rather than closing the entire position at once.
- Stop DistanceStart hereStop distance is the difference between a trade's entry price and its planned stop loss level. It may be measured in price, percentage or another unit relevant to the market.
- Tail RiskStart hereTail risk refers to the possibility of unusually large market moves or outcomes in the extreme parts of a probability distribution.
- Taking ProfitStart hereTaking profit means reducing or closing a profitable position to realise some or all of the gain.
- Trade InvalidationStart hereTrade invalidation is the market condition or price level that causes the original reasoning behind a trade to no longer hold.
- Trade ManagementStart hereTrade management is the process of managing a position after entry according to a predefined plan. It can include adjusting stops, taking partial profits, adding or reducing exposure and responding to changes in the original trade thesis.
- Trading JournalStart hereA trading journal is a structured record of trades, decisions, results and observations used to evaluate trading performance over time.
- Trading PlanStart hereA trading plan is a predefined framework describing how a trader identifies opportunities, enters positions, manages risk and exits trades.
- VolatilityStart hereVolatility describes the magnitude and variability of price movements over a period. Higher volatility means price is moving more widely or rapidly relative to lower volatility conditions.
- Win RateStart hereWin rate is the percentage of completed trades that produce a profit under the measurement being used.
RWA Asset Classes
- Carbon Credit RetirementCarbon credit retirement is the process of permanently removing a carbon credit from circulation after it has been used to account for emissions or meet another recognized purpose. Once properly retired, the same credit should not be available to be used again.
- Carbon CreditsA carbon credit is a tradable unit representing a specified quantity of greenhouse gas emissions reduced, removed or otherwise accounted for under a particular carbon market or standard. Carbon credits can be represented and transferred using blockchain based infrastructure.
- Infrastructure AssetsInfrastructure assets are physical or operational assets that support essential economic activity. Examples can include energy infrastructure, transport networks, telecommunications infrastructure, utilities and other large scale facilities.
- Infrastructure TokenizationInfrastructure tokenization is the use of blockchain based tokens to represent investment interests or financial rights connected to infrastructure assets or projects. These could include interests linked to energy, transport, telecommunications, utilities or other infrastructure.
- Intellectual Property (IP) TokenizationIntellectual Property tokenization uses digital tokens to represent ownership, economic rights or financial interests connected to intellectual property. This could involve rights associated with music, patents, media, licensing agreements or other forms of intellectual property.
- Private CreditStart herePrivate credit is lending provided to businesses or other borrowers outside traditional publicly traded bond markets. Investors provide capital and receive interest and principal repayments according to the terms of the loans or investment structure.
- Real Estate DebtReal estate debt is money lent to finance property or property related projects, usually with repayment obligations and often with property or related assets serving as collateral. Tokenized structures can provide investors with digital interests in this debt.
- Real Estate EquityReal estate equity represents an ownership interest in a property or in a legal entity that owns property. Investors may participate in rental income and changes in the property's value after expenses, financing obligations and other claims are accounted for.
- Tokenized BondsStart hereTokenized bonds are bonds whose ownership, issuance or investment interests are represented using blockchain based tokens. Like conventional bonds, they may involve an investor lending money to a government, company or other borrower in return for agreed interest payments and repayment according to the bond's terms.
- Tokenized CollectiblesTokenized collectibles use digital tokens to represent ownership, fractional interests or other rights connected to collectible assets. Examples could include artwork, rare items, luxury goods or other assets valued partly because of scarcity and demand.
- Tokenized CommoditiesStart hereTokenized commodities are blockchain based tokens designed to represent ownership of, or economic exposure to, commodities such as gold, silver or other physical resources. The structure of the product determines whether the token represents a direct claim on stored commodities or another form of financial exposure.
- Tokenized DebtTokenized debt is a debt obligation or investment interest represented using blockchain based tokens. It can include tokenized bonds, loans, private credit and other arrangements where one party owes money to another.
- Tokenized FundsStart hereTokenized funds are investment funds whose shares, units or investment interests are represented using blockchain based tokens. The underlying fund may invest in assets such as government securities, bonds, private credit, equities or other investments.
- Tokenized GoldTokenized gold is a digital token designed to represent ownership of, or a claim linked to, physical gold. In physically backed structures, specified quantities of gold are held in custody while tokens represent corresponding interests according to the product's terms.
- Tokenized LoansTokenized loans use blockchain based tokens or infrastructure to represent interests in loans, loan portfolios or the rights to receive payments from borrowers. The underlying debt still exists according to the legal terms of the lending arrangement.
- Tokenized Money Market FundStart hereA tokenized money market fund is a money market fund whose shares or investment interests are represented using blockchain based tokens. The fund itself typically invests in short term, high quality instruments such as government securities, repurchase agreements or other short maturity assets according to its investment mandate.
- Tokenized Private EquityTokenized private equity uses blockchain based tokens to represent investment interests connected to privately owned companies or private equity funds. Depending on the structure, the token may represent shares, fund interests or economic rights linked to private investments.
- Tokenized Real EstateStart hereTokenized real estate uses blockchain based tokens to represent ownership, economic rights or another investment interest connected to property. Depending on the structure, investors might own interests in a company or SPV that owns the property rather than owning part of the property title directly.
- Tokenized SecuritiesStart hereTokenized securities are securities whose ownership or investment interests are represented using blockchain based tokens. They can include tokenized shares, bonds, fund interests and other regulated financial instruments.
- Tokenized StocksStart hereTokenized stocks are blockchain based tokens designed to provide ownership of, or economic exposure to, shares in publicly traded companies. The exact structure varies. Some products may be backed by actual shares, while others may provide exposure through a different legal or financial arrangement.
- Tokenized TreasuriesStart hereTokenized Treasuries are blockchain based investment products that provide exposure to government Treasury securities, most commonly short term U.S. Treasury bills or funds that hold them. The token represents an interest or claim defined by the product's legal structure rather than turning the government security itself into a cryptocurrency.
Stablecoins and Tokenized Money
- Central Bank Digital Currency (CBDC)A Central Bank Digital Currency, usually shortened to CBDC, is a digital form of central bank money issued by a country's monetary authority. CBDCs can be designed for public use, financial institutions or particular settlement purposes depending on the system.
- Central Bank MoneyCentral bank money is money that represents a direct liability of a central bank. It includes physical currency and certain balances held at the central bank, while the exact forms available depend on the financial system and type of participant.
- Commercial Bank MoneyCommercial bank money is money held as deposits at commercial banks. The balance displayed in a normal bank account is generally a claim on the bank rather than physical cash being individually stored for the account holder.
- DepegStart hereA depeg occurs when an asset designed to track a reference value moves meaningfully away from that target. For example, a stablecoin intended to trade around $1 would be depegging if its market price moved materially away from $1.
- Deposit TokenA deposit token is a tokenized representation of a deposit liability issued by a commercial bank. The term is commonly used when discussing bank deposits represented on distributed ledger or blockchain based infrastructure.
- Digital MoneyDigital money is a broad term for monetary value that exists or is represented electronically. It can include conventional bank deposits as well as newer forms of digitally represented money such as stablecoins, tokenized deposits and central bank digital currencies.
- Fiat Backed StablecoinStart hereA fiat backed stablecoin is a stablecoin designed to maintain its value using reserves linked to a national currency. For a U.S. dollar stablecoin, those reserves may include cash and other eligible financial assets, depending on the product and regulatory framework.
- PegStart hereA peg is the target value that a token or currency is designed to maintain relative to another asset. For example, a U.S. dollar stablecoin may aim to maintain a peg of $1 per token.
- Redemption at ParRedemption at par means being able to exchange an asset for its stated reference value. For a stablecoin designed to represent one U.S. dollar, redemption at par would generally mean redeeming one eligible token for one dollar, subject to the issuer's terms, fees and eligibility requirements.
- Reserve AssetsStart hereReserve assets are assets held to support the value or obligations of a financial product. For fiat backed stablecoins, reserves may include cash, bank deposits, government securities or other permitted assets depending on how the stablecoin is structured.
- Reserve AttestationA reserve attestation is an independent examination intended to provide assurance about specified information relating to assets held in reserve at a particular point or over a defined period. Stablecoin issuers may publish attestations concerning the assets supporting tokens in circulation.
- Settlement AssetStart hereA settlement asset is the asset used to complete the payment side of a financial transaction. In tokenized markets, settlement assets could include stablecoins, tokenized bank deposits or other forms of digital money depending on the market structure.
- StablecoinStart hereA stablecoin is a digital token designed to maintain a relatively stable value, usually by referencing another asset such as a national currency. Many widely used stablecoins aim to maintain a value of approximately one U.S. dollar per token, although the mechanism used to achieve that stability varies between products.
- Stablecoin IssuerStart hereA stablecoin issuer is the entity responsible for issuing a stablecoin and managing the obligations associated with it. Depending on the structure, the issuer may oversee token creation and redemption, reserve management arrangements and compliance requirements.
- Stablecoin ReservesStart hereStablecoin reserves are the assets held to support the obligations and value of a reserve backed stablecoin. Depending on the stablecoin, reserves may include cash, bank deposits, government securities or other permitted assets.
- Tokenized DepositStart hereA tokenized deposit is a digital representation of a bank deposit recorded or transferred using distributed ledger or blockchain based infrastructure. It represents a claim on the issuing bank rather than being a separate privately issued stablecoin backed by a pool of reserve assets.
The Greeks
- CharmCharm measures how an option's Delta changes as time passes, assuming other relevant factors remain unchanged. It is sometimes called Delta decay.
- DeltaStart hereDelta measures how much an option's theoretical value is expected to change for a $1 change in the underlying asset price, assuming other relevant factors remain unchanged. Calls generally have positive Delta. Puts generally have negative Delta. Example A call has: Delta = 0.60 If the underlying rises by approximately $1, the option's theoretical value might initially be expected to increase by roughly: $0.60 all else equal. With a standard 100 share contract multiplier, that corresponds to approximately: $60 per contract.
- Delta as ProbabilityDelta is sometimes used as a rough shortcut for estimating the probability that an option will finish in the money, but Delta is fundamentally a measure of option price sensitivity rather than a direct probability measure.
- Delta EquivalentDelta equivalent translates an options position's Delta into an approximate amount of underlying directional exposure. Example Suppose one standard equity call has: Delta = 0.60 and multiplier: 100 Approximate share equivalent Delta: 0.60 × 100 = 60 The position therefore has roughly the immediate directional sensitivity of 60 shares, before considering Gamma and the other Greeks.
- Delta ExposureStart hereDelta exposure describes how sensitive an option or options portfolio is to changes in the price of the underlying asset.
- Delta NeutralStart hereA delta neutral position is structured so that its net Delta is approximately zero at a particular point in time.
- Dynamic GreeksStart hereDynamic Greeks refers to the fact that an option's Greek values change as the underlying price, time to expiration, implied volatility and other pricing inputs change.
- GammaStart hereGamma measures how much an option's Delta is expected to change when the underlying asset price changes by $1, assuming other relevant factors remain unchanged. Example An option has: Delta = 0.50 Gamma = 0.05 If the underlying rises by approximately $1, the Delta might move from roughly: 0.50 to 0.55 under the simplified Greek approximation.
- Greek ExposureStart hereGreek exposure refers to the sensitivity of an option or portfolio to the pricing variables represented by the Greeks.
- Negative DeltaStart hereNegative Delta means a position generally benefits from a decrease in the underlying asset price, all else equal. Long puts typically have negative Delta. Short calls also typically have negative Delta.
- Negative GammaStart hereNegative Gamma means Delta changes against the position as the underlying makes larger directional moves. Short options generally have negative Gamma.
- Negative ThetaStart hereNegative Theta means the position tends to lose value as time passes, all else equal. Long options commonly have negative Theta.
- Negative VegaStart hereNegative Vega means a position generally benefits when implied volatility falls, all else equal. Short options generally have negative Vega.
- Net DeltaStart hereNet Delta is the combined Delta exposure of multiple positions in a portfolio or strategy.
- Option GreeksStart hereThe Greeks are a set of measures describing how an option's theoretical value responds to changes in different variables. The five Greeks most traders encounter are Delta for the underlying price, Gamma for changes in Delta as the underlying moves, Theta for the passage of time, Vega for implied volatility and Rho for interest rates.
- Portfolio GreeksStart herePortfolio Greeks measure the combined Greek exposures of multiple options positions. A portfolio can therefore have: net Delta, net Gamma, net Theta, net Vega, and net Rho.
- Positive DeltaStart herePositive Delta means a position generally benefits from an increase in the underlying asset price, all else equal. Long calls typically have positive Delta. Short puts also typically have positive Delta.
- Positive GammaStart herePositive Gamma means Delta changes in a favorable convex direction as the underlying moves. Long options generally have positive Gamma.
- Positive ThetaStart herePositive Theta means the position tends to benefit from the passage of time, all else equal. Option selling strategies often have positive Theta.
- Positive VegaStart herePositive Vega means a position generally benefits when implied volatility rises, all else equal. Long options generally have positive Vega.
- RhoStart hereRho measures an option's sensitivity to changes in the interest rate input used in its pricing, commonly expressed for a one percentage point change in rates.
- Second Order GreeksSecond order Greeks measure how certain option sensitivities themselves change as market variables change. Gamma is the best known example because it measures how Delta changes as the underlying price moves. Other advanced Greeks examine interactions between Delta, volatility and time.
- ThetaStart hereTheta measures the sensitivity of an option's theoretical value to the passage of time, usually expressed as an estimated change over a specified time interval, commonly one day, assuming other relevant factors remain unchanged. Example An option displays: Theta = -0.15 Under the platform's convention, that may indicate an estimated loss of approximately: $0.15 in option value from the passage of one day, all else equal. With a 100 share multiplier, that would correspond to approximately: $15 per contract.
- Theta DecayStart hereTheta decay refers to the reduction in option value associated with the passage of time as measured by Theta, assuming other factors remain unchanged.
- VannaVanna measures the interaction between an option's Delta and implied volatility. It can be viewed as describing how Delta changes as volatility changes, or equivalently how Vega changes as the underlying price changes.
- VegaStart hereVega measures how much an option's theoretical value is expected to change for a one percentage point change in implied volatility, assuming other relevant factors remain unchanged. Although called a Greek, Vega is not actually a Greek letter. Example An option has: Vega = 0.20 If implied volatility rises from: 30% to 31% the option's theoretical value might increase by approximately: $0.20 all else equal. With a 100 share multiplier: approximately $20 per contract.
- Vega ExposureStart hereVega exposure describes how sensitive an option or portfolio is to changes in implied volatility.
- VommaVomma measures how an option's Vega changes as implied volatility changes.
Tokens and Blockchain Infrastructure
- Blockchain NetworkA blockchain network is the infrastructure of computers, software and rules that maintains a blockchain and processes transactions. Different blockchain networks can have different approaches to transaction costs, speed, security, permissions and interoperability.
- BurningBurning is the process of permanently removing tokens from circulation, usually by sending them to an unusable address or using a smart contract function that destroys them. In some RWA structures, tokens may be burned when an investment is redeemed or canceled.
- InteroperabilityInteroperability is the ability of different systems, networks or applications to communicate and work with one another. In tokenized markets, this can involve assets and information moving between different blockchain networks or connecting blockchain infrastructure with traditional financial systems.
- MintingMinting is the process of creating new tokens on a blockchain. In an RWA structure, tokens may be minted when new investment interests are issued or when additional assets enter the tokenized structure.
- Onchain RecordAn onchain record is information stored or recorded on a blockchain. For tokenized assets, this may include token balances, ownership addresses, transfers, issuance activity or other transaction data.
- OracleStart hereAn oracle is infrastructure that provides a blockchain or smart contract with information from outside the blockchain. This information could include asset prices, interest rates, exchange rates or other data needed by an onchain application.
- Permissioned TokenStart hereA permissioned token is a token whose ownership or transfer is restricted according to predefined rules. For example, transfers may only be allowed between wallets belonging to investors who have completed identity checks or meet particular eligibility requirements.
- Permissionless TokenA permissionless token can generally be held or transferred without requiring each participant to receive prior approval from a central administrator. This is common across many cryptoassets, although the exact rules depend on the token and blockchain.
- Private KeyA private key is secret cryptographic information used to authorize transactions and prove control over assets associated with a blockchain account. It should never be shared publicly.
- Proof of ReservesStart hereProof of reserves refers to methods used to provide evidence that assets claimed to back a token or financial product are actually being held. The evidence may involve onchain data, third party attestations, custodial information or a combination of different verification methods.
- Public AddressA public address is an identifier used to send, receive and track assets or transactions on a blockchain. It can usually be shared publicly and is different from the private credentials used to authorize transactions.
- Smart ContractStart hereA smart contract is software deployed on a blockchain that automatically executes predefined rules when certain conditions are met. In RWA markets, smart contracts can help manage token issuance, transfers, ownership records, investor restrictions, distributions and other processes.
- TokenStart hereA token is a digital unit recorded on a blockchain that can represent value, ownership, rights or access. In RWA markets, a token may represent an interest in an asset, security, fund, debt instrument or another financial arrangement.
- Token IssuanceStart hereToken issuance is the process through which tokens are created and made available to investors or other participants. In an RWA structure, issuance may involve legal documentation, investor verification, payment, smart contracts and the creation or allocation of tokens.
- Token MetadataToken metadata is information associated with a digital token that describes or identifies characteristics of that token. Depending on the implementation, metadata may include a token's name, symbol, description or references to additional information.
- Token RedemptionStart hereToken redemption is the process of exchanging a token for the value, asset or financial claim it is designed to represent, subject to the rules of the product. Depending on the structure, redemption might result in cash, another asset or the settlement of an investment interest.
- Token StandardA token standard is a set of technical rules that determines how a type of token behaves on a blockchain. Standards can define functions such as how tokens are created, transferred, tracked and recognized by wallets, applications and smart contracts.
- Token SupplyToken supply refers to the number of tokens that have been created or are currently in circulation. For tokenized assets, the supply may correspond to a defined number of shares, units, claims or other interests in the underlying structure.
- WalletA crypto wallet is a tool used to interact with blockchain assets and accounts. Rather than physically storing tokens, a wallet manages the cryptographic credentials that allow a user to access and control assets associated with blockchain addresses.
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The same words, grouped the way they are taught. Each subject is its own page.
Perpetuals
- Analysis 5
- Indicators 15
- Leverage, Margin and Collateral 24
- Liquidation and Exchange Risk Systems 18
- Liquidation Data and Derivatives Positioning 20
- Liquidity, Order Flow and Market Microstructure 28
- Market Context 13
- Market Structure and Trading Context 19
- Open Interest, Volume and Positioning 22
- Orders and Trade Execution 31
- Perpetual Futures Fundamentals 23
- Prices, Indexes and Funding 19
- Risk, Position Sizing and Trade Management 32
Real world assets
Prediction markets