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Glossary — TradeAlmanac

Investor's glossary: financial terms in plain English

Stock market terms with the formula, the calculation method and a list of pitfalls. Every multiple is explained once and surfaces as a tooltip.

All A B C D E F G H I J K L M N O P Q R S T U V W Y Z

BacktestTesting trading rules on historical data: how a portfolio would have behaved had decisions in the past been taken by those rules.
BackwardationA situation in which the far-dated contract is cheaper than the near one.
Bail-in riskThe risk of a financial institution being resolved with part of its creditors' claims written down.
BailoutSupport for a failing bank or company out of the budget or from the central bank.

Balance of paymentsThe record of all a country's transactions with the rest of the world over a period.

Balance sheetThe statement of what a company owns and how it is financed.

Bank runDepositors demanding their money back at once, which a bank cannot satisfy because the funds are lent out long.

Barbell portfolioA holding built from very short and very long issues with nothing in the middle.

Barbell strategyA bond portfolio built from two extremes instead of the middle: very short and very long maturities with nothing in between, reaching the desired average duration with more flexibility.

Barriers to entryObstacles preventing new players from entering an industry.

Base currencyThe first currency in a pair: the one whose single unit is being priced.

Base effectA distortion in growth rates caused by an unusually low or high value in the comparison period.

Base metalsIndustrial metals such as copper, aluminium and nickel, traded on world exchanges in standard contracts.

Base rate neglectJudging probability by the vividness of a description instead of by how common the phenomenon is: a persuasive story displaces the question of how often such things happen at all.

BasisThe difference between the price of a futures contract and the price of the same asset on the spot market.

Basis convergenceThe futures price closing in on the spot price as expiry approaches.

Basis riskThe risk that a hedging instrument fails to track the asset it is meant to protect.

Behavioural riskThe risk an investor creates for himself: stepping outside his own plan, trading on a headline, raising position sizes after a run of luck.

BenchmarkThe reference against which a portfolio's result is measured.

Best bid and offerThe highest price among buy orders and the lowest among sell orders standing in the book at this moment.

BetaA measure of how closely a security moves with the market.

Bid-offer spreadThe gap between the price at which currency is sold to a client and the price at which it is bought back.

Big bath accountingThe practice of writing off as much as possible at once in a loss-making year: the year is bad anyway, and future charges have already been taken.

Black Monday 1987The collapse of the US market in October 1987 — the largest single-session fall on record.

Block tradeA trade in a large parcel whose terms are agreed away from the central order queue.

Blocking sanctionsThe severest form of restriction: the target's assets are frozen and residents of the imposing country are barred from any dealings with it.

Blocking stakeA holding large enough to prevent a decision that requires a supermajority of votes.

Blue chipsThe largest, most liquid shares with broad analyst coverage.

Board of directorsThe governing body that recommends the dividend and sets strategy.

Bollinger BandsA channel around a moving average whose width follows volatility.

Bond amortisationRepayment of the principal in instalments over the life of the bond rather than in one sum at the end.

Bond arrangerThe bank or investment firm preparing a placement: it structures the issue, gathers demand and allocates the bonds.

Bond collateralProperty or claims out of whose value holders are paid if the issuer stops paying.

Bond fair priceThe sum of all future payments on the issue, discounted to today at the required yield.

Bond fundA fund invested in debt securities. Unlike a single bond it has no maturity date: the term does not approach, it is maintained at a constant level.

Bond ladderA portfolio of issues with maturities spread evenly across time.

Bond programmeA framework document registered once, under which the issuer places individual series without repeating the full procedure.

Bond put dateThe investor's right to present a bond to the issuer for redemption on a set date.

Bond total returnThe outcome of holding over a period: coupons, the change in price and the income earned on the coupons received, taken together.

Bondholder representativeA person acting in the interests of all holders of an issue: monitoring compliance with the terms and presenting claims to the issuer on their behalf.

Bondholders meetingThe body through which holders of one issue take common decisions: agreeing to changed terms, waiving a right of claim, appointing a representative.

Breakeven inflationThe gap between the yield of an ordinary government issue and that of an inflation-linked bond of the same maturity: the inflation rate at which both deliver the same outcome.

BreakoutThe price leaving the boundary of the range it had been holding.

Bretton Woods systemThe post-war architecture of world finance: currencies fixed to the dollar, and the dollar convertible into gold at an announced price.

BrokerThe licensed intermediary through whom a private investor sends orders to the exchange.

Broker commissionThe broker's charge for executing a trade, usually a share of its size.

Broker statementA periodic document listing trades, cash and securities movements, fees withheld and closing balances.

Brokerage accountAn account with a licensed market participant through which orders in securities are placed.

Budget deficitGovernment spending in excess of revenue over a period; the opposite balance is called a surplus.

Bullet portfolioA holding whose maturities are concentrated around a single date.