Backwardation
MARKET: Commodities
A term used in commodities futures markets to describe a situation where shorter-dated contracts trade at a higher price than longer-dated contracts. This could be as a result of a temporary shortage of the commodity in question — which will tend to raise the spot market price.
Balance of Payments (BoP)
MARKET: Economics
Measures the payments that flow between any individual country and all other countries. BoP is used to summarise all international economic transactions for that country during a specific time period, usually a year. The BoP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits).
Bank Supervision
MARKET: Regulation
The Reserve Bank is responsible for bank regulation and supervision in South Africa. Its purpose is to achieve a sound, efficient banking system in the interest of the depositors of banks and the economy as a whole. This function is performed by issuing banking licences to banking institutions, and monitoring their activities. The objectives of bank regulation are:
- Prudential – to lessen the level of risk bank creditors are exposed to (i.e. to protect depositors).
- Systemic risk reduction – to reduce the risk of disruption resulting from adverse market conditions causing multiple or major bank failures.
- To protect banking confidentiality.
- Credit allocation – to direct credit to favored sectors.
Barrier Option
MARKET: Options
A type of financial option where the option to exercise depends on the underlying security’s price crossing or reaching a given barrier (hurdle) level. Barrier options are path-dependent exotic options that are similar in some ways to ordinary options. There are puts and calls, as well as European and American styles, but these options become activated or worthless only if the underlying reaches a predetermined level (barrier). "In" options start out as worthless and only become active in the event a predetermined knock-in barrier price is breached. "Out" options start their lives active and become worthless in the event a certain knock-out barrier price is breached. Up-and-out (Down-and-Out): spot price starts below (above) the barrier level and has to move up (down) for the option to be knocked out (become null and void). Up-and-In (Down-and-In): spot price starts below (above) the barrier level and has to move up (down) for the option to become activated.
Base Currency
MARKET: FX
In a foreign exchange transaction, the base currency is the currency that is quoted as one and is usually not seen in the given quotation. For instance, in a USD/CHF quotation of 1.2350, the base currency is the dollar, since USD1 = CHF1.2350. In a EUR/USD quotation of 1.2565, the base currency is the EUR, since EUR1 = USD1.2565.
Basis Point (bp)
MARKET: Debt Markets
One one-hundredth of one percentage point (0.01%). Used to describe changes in yields (interest rates).
Basis Point Value
MARKET: Debt Markets
The change in the fair (market) value of an interest-bearing instrument given a 0.01% change in yield to maturity, or applicable interest rate. Also, the rand value of one basis point change in the yield of a security.
Basis Risk
MARKET: Derivatives
The risk of a relative change in the relationship between an exposure being hedged and the hedge contract, usually a futures contract. There is a possibility of the basis narrowing or widening, depending on the relative demand for the underlying asset and the futures contract.
Basis Swap
MARKET: Derivatives
An interest rate swap where both legs (sides) of the swap are referenced against floating interest rate indices, but the two references are on different bases, e.g. Prime against 3-m JIBAR.
Bear
MARKET: General
A person who believes that market prices will fall or decline.
Bear Market
MARKET: General
A prolonged period of time when market prices are falling in a segment of the financial market
Bearish
MARKET: General
Market participants are bearish when they believe that market prices on shares, commodities, bonds or any other financial instrument are going to decline or fall in the future.
Bear (Short) Sale
MARKET: General
Takes place when a trader sells a financial instrument with the view that the market price will go down and therefore hopes to buy it back at a lower price, realising a profit from the fall in price.
Bear Trap
MARKET: General
A short-term reversal of an upward trend. Market participants who are misled by the temporary change in direction will liquidate their long positions or even sell short, causing them to lose money when the market resumes its upward direction.
Benchmark
MARKET: General
A reference point (interest rate) or an asset, e.g. a Government interest rate security that acts as a benchmark for interest rate levels in a particular maturity due to their low probability of default.
Benchmarking
MARKET: General
The practice of comparing the performance of an individual instrument, a portfolio or an approach to risk management to a pre-determined alternative or acceptable approach. An example of benchmarking would be the comparison (in return) between a general equity portfolio and the all-share index on the stock exchange.
Bermudan Option
MARKET: Options
An option where the buyer has the right to exercise at a set number of times during the life of the option.
Bernanke
Ben Bernanke succeeded Alan Greenspan as the Chairman of the Board of Governors of the United States Federal Reserve.
BESA
MARKET: Fixed Income
Bond Exchange of South Africa
Bid (Price)
MARKET: General
A price offered by a buyer/bidder of the underlying instrument, asset or security The bid (buy) price is usually just referred to as the "bid”. In the interest rate markets, it also represents the rate at which a market maker is willing to borrow funds from a counterparty.
Bid-Offer Spread
MARKET: General
The difference between the buying (bid) rate and the selling (offer, or ask) rate. Example, if the bid is 11.25% and the offer is 11.75%, the bid-offer spread is 0.50%.
Big figure
Stem, or whole dollar price, of a quote. Example USD/JPY = 89.55, “89” is big figure
Big Mac PPP
MARKET: General
Big MAC Purchasing Power Parity is a survey done by The Economist to determine what a country's exchange rate would have to be for a Big Mac in that country to cost the same as it does in the United States. The measure gives an impression of how overvalued or undervalued a particular currency is.
Black Monday
MARKET: General
The most notorious day in financial market history (19 October 1987). The DJIA (Dow Jones) fell 508 points, almost 22%. This stands as the largest one-day drop in NYSE history.
Black-Scholes
MARKET: Options
A mathematical model that is used to calculate the value of European options on dividend-paying stock. The formula was derived by Fisher Black and Myron Scholes and was published in 1973.
Blue Chip
MARKET: Equity Markets
The stock/share of a well-established company which has stable earnings. Most blue chip stocks pay regular dividends, even when business is worse than usual. These shares are valued by investors seeking relative safety and stability, though prices per share are usually high. Typically, such stocks are perceived to offer reliable returns. The term comes from blue-coloured poker chips, which are typically the most valuable.
BOE
Bank of England
BOJ
Bank of Japan
Bond
MARKET: Fixed Income
A debt certificate representing long-term debt issued by a government, bank or corporation to raise money to fund long-term projects. The face value, coupon (interest %) and the payment and maturity dates form part of the debt security. There is generally a pre-agreed schedule on which the issuer will repay the debt.
Bond Market
MARKET: Fixed Income
Also known as the long-term debt, credit, or fixed income market. A financial market segment where participants buy and sell debt (interest rate) securities usually in the form of bonds. The buying and selling of these bonds takes place in the secondary market.
Book Closure Date
MARKET: Fixed Income
The date (for SA bonds, normally ten days before a coupon payment date), on which the register of bondholders closes for purposes of the payment of the next coupon payment. The registered owner of the bond on this day will receive the full coupon for the preceding coupon period on the coupon payment date.
Book Value
MARKET: General
The value at which an asset/instrument/contract appears in the books, or accounts, of a company or institution. If this value differs from the current market value, it implies that an unrealised profit (loss) exists, if market value is above (below) book value.
BoP — Current Account
MARKET: Economics
The sum of all trade and service transactions plus the net returns of cross-border investments. It is also equal to the difference between a country’s savings and investment.
BoP — Financial (Capital) Account
MARKET: Economics
The financial or capital account records all transactions between domestic and foreign residents that involve a change of ownership of an asset. It is the net result of public and private international investment flows in and out of a country. This includes foreign direct investment, portfolio investment (such as changes in holdings of stocks and bonds) and other investments (such as changes in holdings in loans, bank accounts, and currencies).
BoP — Income Account
MARKET: Economics
The difference between income earned from offshore investment by locals and income paid to foreigners for their onshore investments.
BoP — Invisibles
MARKET: Economics
The sum of the services, income and transfers account.
BoP — Services Account
MARKET: Economics
The difference between imports and exports of services (such as shipping, travel tourism, insurance, banking and brokerage).
BoP — Trade Balance
MARKET: Economics
The difference between the value of imports and exports of physical goods.
BoP — Transfers
MARKET: Economics
The transfer of private money, usually worker remittances.
Borrower
MARKET: Debt Markets
The party in a loan agreement that receives money from a lender and promises to repay the lender within a pre-specified time period.
Bovespa Index
MARKET: General
The Bovespa Index (Portuguese: Índice Bovespa) is an index of about 50 stocks that are traded on the São Paulo Stock, Mercantile & Futures Exchange. The index is composed by a theoretical portfolio with the stocks that account for 80% of the volume traded in the last 12 months and that were traded at least on 80% of the trading days. The index is revised quarterly.
Bp
MARKET: Debt Markets
Market abbreviation for basis point. This generally represents the smallest movement in an interest rate which then affects the market price of the instrument.
BPV (Basis Point Value)
MARKET: Debt Markets
The change in the fair value of an interest-bearing instrument given a 0.01% change in yield to maturity, or applicable interest rate. Also, the rand value of one basis point change in the yield of a security.
Breakeven
MARKET: General
A trading position or trading strategy is considered to break even when the costs involved in entering into the position/strategy are offset by a realisable profit.
Break Forward
MARKET: FX
A forward contract which exhibits features of a financial option. Effectively, the break forward can be viewed either as a forward contract that incorporates a cancellation feature, or an option contract with the premium incorporated into the strike price.
Bretton-Woods Agreement
MARKET: FX
The agreement reached at the United Nations Monetary and Financial Conference held in 1944, which sought to stabilise the world monetary system by setting fixed exchange rate parities and by establishing the World Bank and the International Monetary Fund.
Broken Date
MARKET: All market
A value (settlement) date that is not a regular forward date. Regular forward dates are usually quoted as 1-month, 2-months, 3-months, 6-months, 9-months and 1-year. An example of a broken date would be to enter into a fixed deposit for a period of 48 days.
Broker
MARKET: All markets
An individual or firm that charges a fee or commission (usually called brokerage) for executing buy and sell orders submitted by a market participant. A broker also describes the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.
BUBA
MARKET: General
Bundesbank – Central bank in Germany
Bull
MARKET: General
A person who is of the view that market prices will increase or rise in the future.
Bullish
MARKET: General
Market participants are said to be bullish when they believe that market prices of shares, commodities, bonds or any other financial instrument are going to increase or rise in the future.
Bull Market
MARKET: General
A market which is in a consistent upward trend.
Bull Call Spread
MARKET: Options
A bullish option trading strategy that is established by buying an at-the-money call while simultaneously selling a higher strike out-of-the-money call on the same underlying security and with the same expiration month.
Bullet Bond
MARKET: Fixed Income
A security, the principal of which is due (payable) at maturity. Also referred to as a “Straight” or “vanilla” bond.
Bull Put Spread
MARKET: Options
An option trading strategy with limited profit and limited risk that can be used when the trader is moderately bullish on the underlying security. It is entered by selling higher strike put options and buying the same number of lower strike put options on the same underlying security with the same expiration date. The trader hopes that the price of the underlying security goes up far enough for the written put options to expire worthless.
Business Cycle
MARKET: General
Also know as the economic cycle. The periodic fluctuations of economic activity around its long-term growth trend. The cycle involves shifts over time between periods of relatively rapid growth of output (recovery and prosperity), alternating with periods of relative stagnation or decline (contraction or recession). These fluctuations are often measured using real gross domestic product.
Butterfly Spread
MARKET: Options
In options trading, a butterfly is a combination trade which can be created by buying call at (X - x) strike, selling 2 calls at X strike and buying 1 call at (X + x) strike all with the same expiration date. At expiration, the position will be worth zero if the underlying is below X - x or above X + x, and will be worth a positive amount between these two values. A butterfly can also be created by selling a put option at (X - x) strike, buying 2 puts at X strike and selling 1 put at (X + x) strike and this is equivalent to the call version. The double position in the middle is called the body, while the two other positions are the wings.
