All Or None Order (AON)
A condition used on a buy or sell order that instructs that the order should be filled completely or not at all. This prevents orders from being half filled.
Example
If an AON order is placed requesting 100 shares of a stock at $20, then the order will not be filled unless all 100 shares are available at the same time.
Beta
A measure of a security's or portfolio's volatility, or systematic risk, in comparison to the market as a whole. Beta is calculated using regression
analysis. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less
volatile than the market while a beta of greater than 1 means that the security will be more volatile than the market.
Buying Power
The maximum money that a Trader has available to purchase securities. In a real-world margin account, the buying power is the total cash plus maximum
margin available. In a non-margin account the buying power is equal to the cash.
Example
A margin account with $1000 and a margin rate of 50% (meaning up to 50% of the portfolio could be financed by borrowed money) would have a total buying power of $2000.
Cover
See Short Selling.
Draw Down
Draw Down is the percentage difference between a portfolio's current end of day value and it's highest previous end of day value or starting value. Max Draw Down is the largest value this percentage was at any point in the competition.
Example
If Trader A and B both start with $100k, and trade A gains $25k and then loses $25k, his max draw down is $25k/$125 = 20%. If Trader B loses $25k (without ever ending a day above $100k) and is disqualified, his max draw down is $25k/$100k = 25%. portfolios with smaller max draw down values are less risky provided a long enough track record exists.
Equity
The net worth of a portfolio. In other words the sum of all positions plus the cash on hand minus the cash borrowed for margin purposes.
High Bid
The highest limit price at which any market participant is willing to buy stock. A market sell order will execute at this price. Also a limit sell
order will execute when the high bid is greater than or equal to the limit sell price.
Inside Market
The highest bid and the lowest ask.
Limit Order
An order placed to buy or sell shares at a specified price (limit price) or better.
Example
An order to buy 100 shares of XYZ at 40 will not execute until the ask price is 40 or better (lower in this case since the order is attempting to buy.)
An order to sell 100 shares of XYZ at 40 will not execute until the bid price is 40 or better (higher in this case since the order is attempting to sell.)
Low Ask
The lowest limit price at which any market participant is willing to sell stock. A market buy order will execute at this price. Limit buy orders will
execute when the low ask is less than or equal to their limit price.
Margin
Borrowed money that is used to buy or short stocks. In the real world, a trader must put up 50% of the purchase price of the security which gives him "2 to 1 margin." This allows him to buy or short up to 2 times his equity.
Example
If $20,000 is deposited in a margin account, then that account has a buying power of $40,000.
Maintenance Margin
The minimum amount of equity that must be maintained in an account. If the equity falls below that amount, positions are closed until equity rises
above that amount. The Federal Minimum Maintenance Margin level is 25%, though individual brokerages have higher minimum levels (30%-50%.)
One Cancels the Other Order (OCO)
Also called a bracket order, OCO orders are a combination of a stop and limit order. If either the stop or limit part of the order executes the other
part of the OCO order is immediately cancelled. These orders are useful for "bracketing" how far a position can move. If a trader owns XYZ at 40 he
can enter an OCO sell order with a stop price at 39 and a limit price at 45. In most cases, he can lose at most a 1 pt (40-39) and he can gain at
most 5 pt (45-40.) Note that if the stock has good earnings it could open at 50 the next day (and the OCO's limit order would execute at 50) or it
could have bad earning and open at 30 the next day (and the OCO's stop order would execute at 30.) but in most cases an execution will happen near
the stop or the limit price. Almost the same behavior could be accomplished with a stop order plus a limit order but when one of those two executes
and sells out the position, the other is still a live order than accidentally sell the stock twice and get the trader short.
Position Opening Order
Any order which increases the absolute value of the position size. If a portfolio is long 300 shares (position size = 300) of XYZ and received an
order to buy 100 shares, that is a position opening order. If a portfolio is short 300 shares (position size = -300) and receives an order to sell
100 shares, that is also a position opening order.
Profit Factor
Profit factor is the money gained in all winning trade sets divided by the money lost in all losing trade sets. A trade set is a series of trades that starts with a position size of 0 in a stock and ends with a position size of 0 in that same stock. Profit factor determines how much money on average a trader makes for every $1 he or she loses. Provided enough trades, higher profit factors are better as they indicate a more efficient trader.
Example
If a trader bought 100 of XYZ at 4, 100 more at 5 and then sold it all at 7, that would be one trade set with a gain of (7-4)*100 + (7-5)*100 = $500. If that same trade also bought 200 shares of ABC at 3 and sold it a 2, that would be a net loss of $200. If those were the only two trade sets in the portfolio, it's profit factor would be $500/$200 = 2.5
Regular Trading Session
The market is open and trading is allowed in all unhalted stocks during the Regular Trading Session. Regular Trading Session hours are generally 9:30
EST to 4:00 pm EST. A few times a year (and every after Thanksgiving trading session) half days are declared and the market is open 9:30 EST to 1:00
EST.
Selling a security that is borrowed. Sellers must purchase the stock to return the borrowed shares. Ideally the seller wants to purchase the stock at a lower price than it the borrowing price.
Short sellers make money if the stock goes down in price.
Example
Say you thought stock XYZ currently trading at $40 was going to go down in value over the next week. You could borrow 100 shares from a broker,
sell them for 100x$40=$4000 and wait for the stock to go down. At this point you have $4000 cash and you owe someone 100 shares of XYZ. To do this,
you take a "short" position in that stock.
If XYZ went down to 37, you'd have a $4000 asset (the cash) versus a $3700 liability (the cost to buy 100 shares of XYZ @ $37 so you can "cover"
the 100 shares that you borrowed from the broker.) If you closed the position by covering the short at $37, you'd earn a profit of $300 before
commissions.
If, on the other hand, XYZ went up to 45, you'd have a $4000 asset (the cash) versus a $4500 liability (the cost to buy 100 shares of XYZ @ $45 so
you can "cover" the shares you borrowed from the broker.) If you closed the position by covering the short at $45, you'd take a loss of $500 before
commisions.
Note that while you don't have to pay interest for borrowing stock, you do have to pay any dividends that the stock pays while you're short it. For
example, in either of the two cases above if XYZ paid a $1 dividend per share while you were short it, you'd have to pay $100 to the broker to
cover the dividend payment. This would reduce profits in the first example to $200 and would increase the loss in the second example to $600.
Also note that not all stocks can be shorted.
Spread
The lowest ask minus the highest bid. It is how much one would expect to lose if they simultaneously entered a Market Buy Order and a Market Sell
Order. The spread can be negative, but only for very short periods of time. When the spread is negative, the market is said to be "locked"
Stock Halt
Stocks are halted when important news or other events are anticipated. No trading is allowed until the halt ends and trading resumes. Generally, the bid and ask will update while the stock is halted, but the bid and ask are not live during a halt and no orders should be matched until trading resumes.
