Glossary
Arbitrage The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets, or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure that prices do not deviate substantially from fair value for long periods.
Bonds A fancy word for debt. Bonds are debt investments in which an investor lends money to an entity that borrows the funds for a defined period of time at a fixed interest rate.
Collateralized Debt Obligation (CDO) An investment-grade security backed by a pool of bonds, loans, and other assets. CDOs do not specialize in one type of debt but are often nonmortgage loans or bonds.
Credit Default Swap (CDS) A swap designed to transfer the credit exposure of fixed income products between parties.
Dark Pools of Liquidity The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is represented by block trades facilitated away from the central exchanges.
Derivatives A security whose price is dependent upon or derived from one or more underlying assets. A contract between parties. Derivatives are a zero sum game (i.e. if one side loses, the other side wins). There are four major kinds of derivatives: options, futures, forwards, and swaps.
Equities Another term for stocks. An instrument that signifies ...
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