Trading Terms

Appreciation

Increase in the value of an investment over time.

Latency Arbitrage

Latency arbitrage (LA) is a high-frequency trading strategy used to front run trading orders. Both institutional and retail traders are the victim of this predatory trading strategy. In this article I will explain this concept to you using a very simple analogy. As a trader it is very important to know the mechanics of the […]

Equally Weighted

Equal weight is a type of weighting that gives the same weight, or importance, to each stock in a portfolio or index fund, and the smallest companies are given equal weight to the largest companies in an equal-weight index fund or portfolio. Equal weighting differs from the weighting method more commonly used by funds and portfolios in […]

Exponential Moving Average (EMA)

The exponential moving average (EMA) is a technical chart indicator that tracks the price of an investment (like a stock or commodity) over time. The EMA is a type of weighted moving average (WMA) that gives more weighting or importance to recent price data. Like the simple moving average, the exponential moving average is used to see price trends […]

Efficient Markets Hypothesis (EMH)

The efficient market hypothesis (EMH), alternatively known as the efficient market theory, is a hypothesis that states that share prices reflect all information and consistent alpha generation is impossible. According to the EMH, stocks always trade at their fair value on exchanges, making it impossible for investors to purchase undervalued stocks or sell stocks for inflated prices. […]

Dividend

A dividend is the distribution of some of a company’s earnings to a class of its shareholders, as determined by the company’s board of directors. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date. Dividend may be paid out as cash or in the form of additional […]

Delta

(the Greek letter Δ)  A ratio of the change in a security’s option price to the underlying security price.

Curve fitting

Process of repeatedly & artificially improving a backtest model to match the backtest data. When run on new data it inevitably fails.

Crumbling Quote

IEX’s description of the effect of an HFT running ahead of the NBBO update and consuming all the potentially profitable resting trades on the other exchanges. Effectively it looks like the Quote is crumbling away.

Compounding

The procedure in which an asset’s capital gains or interest earnings are reinvested in order to produce more earnings over time.