JSE FX Trader key terms

The gap between the highest price a buyer will pay and the lowest price a seller will accept for the same instrument. It is a direct trading cost and a common measure of market liquidity.

A firm that continuously quotes both buy and sell prices for a security, earning the spread while carrying inventory risk. Market makers are obliged to provide two-way prices under exchange or client agreements.

The ease with which a position can be traded in size without moving the price. Deep markets with many participants and tight spreads are described as liquid.

The difference between the price expected when an order is submitted and the price actually achieved. It arises from price movement and insufficient depth during execution.

An instruction to buy or sell immediately at the best available price. Execution is certain but the price is not, exposing the trader to slippage.

An instruction to trade only at a specified price or better. It controls price but not certainty of execution, and rests in the order book until filled or cancelled.

The electronic record of all resting buy and sell orders for an instrument, ranked by price and time. It shows visible supply and demand at each price level.

The period between trade execution and the final exchange of cash and securities. South African equities typically settle on a T+3 basis, affecting funding and counterparty exposure.

Selling securities borrowed from a lender in the hope of buying them back cheaper later. The trader profits if the price falls but faces unlimited loss potential if it rises.

The temporary transfer of shares or bonds to a borrower, usually against collateral and a fee. It supports short selling and settlement of failed trades.

Collateral deposited with a broker or clearing house to cover potential losses on a position. Initial margin opens the trade; variation margin is paid as prices move.

Revaluing a position at current market prices rather than historical cost. It drives daily margin calls and gives a realistic picture of profit, loss and exposure.

A share's price divided by its earnings per share, showing how many years of current earnings investors are paying for. It is used to compare relative valuation across companies.

A company's profit attributable to ordinary shareholders divided by the weighted average number of shares in issue. It is the denominator of the price-earnings ratio.

Annual dividend per share divided by the share price, expressed as a percentage. It measures income return and is often compared with bond yields.

A share traded with the right to receive a declared but unpaid dividend still attached. Buying cum-dividend entitles the holder to the payment; buying after the ex-date does not.

The date from which a share trades without the right to the next declared dividend. Buyers on or after this date do not receive the payment, and the price typically adjusts downward.

A South African reporting measure of earnings that excludes separately identifiable remeasurements such as impairments and disposal profits. It aims to show sustainable operating performance.

A hybrid security ranking ahead of ordinary shares for dividends and liquidation but typically without voting rights. Dividends are usually fixed and may be cumulative or participating.

A preference share with no fixed redemption date, paying a stated dividend indefinitely unless the issuer calls it. Its price behaves like a long-dated bond and is sensitive to interest rates.

A preference share on which unpaid dividends accumulate as arrears and must be settled before ordinary shareholders receive anything. This protects holders when dividends are suspended.

The price at which one currency is exchanged for another for immediate or near-immediate delivery. It is the base rate from which forward rates are derived.

An agreed rate for exchanging currencies on a future date. It is derived from the spot rate adjusted for the interest rate differential between the two currencies.

The principle that the forward premium or discount between two currencies equals their interest rate differential. It prevents riskless arbitrage between spot and forward markets.

Borrowing in a low-yielding currency to invest in a higher-yielding one, profiting from the interest differential. Returns are vulnerable to sudden currency depreciation.

An exchange rate between two currencies derived via a third, usually the US dollar. It allows pricing of pairs where direct quotes are unavailable or illiquid.

The standard quotation format where the base currency is expressed in units of the quote currency. For example, EUR/USD gives the dollar value of one euro.

An exchange-traded fund holds a basket of assets but trades intraday like a share. Its price tracks net asset value closely through arbitrage by authorised participants.

The total value of a fund's assets minus its liabilities, divided by the number of units outstanding. It is the underlying fair value that an ETF price should track.

The volatility of the difference between a fund's return and its benchmark return. It measures how closely an ETF or index portfolio replicates its index.

A large block of ETF shares that authorised participants can create or redeem in exchange for the underlying basket. This mechanism keeps the market price aligned with net asset value.

The total return earned on a bond held to maturity, assuming coupons are reinvested at the same rate. It reflects the market price, coupon and time remaining.

A measure of a bond's price sensitivity to interest rate changes, expressed in years. A modified duration of five implies roughly a 5% price fall for a one percentage point rate rise.

The curvature of the relationship between bond prices and yields, refining duration estimates for larger rate moves. Positive convexity means gains exceed losses for equal rate changes.

The quoted bond price excluding accrued interest since the last coupon. The buyer pays the clean price plus accrued interest, known as the dirty price.

Interest earned but not yet paid since the last coupon date, owed by the buyer to the seller. It bridges the gap so each party receives the interest for time held.

A statistical measure tracking the performance of a defined basket of securities. Indices serve as benchmarks, underlie derivatives and support index-tracking funds.

An index construction method where each constituent's weight reflects its total market value. Larger companies dominate, and the index requires periodic rebalancing.

Adjusting an index or portfolio back to its target weights after prices drift or constituents change. It enforces discipline but generates transaction costs.

A portfolio built to replicate the holdings of a market index rather than to beat it. It offers low costs and diversification but cannot outperform its benchmark.

A listed option-like instrument giving the holder the right to buy shares from the issuer at a set price before expiry. Warrants are leveraged and can expire worthless.

The ratio of an instrument's underlying exposure to the capital invested, showing amplified returns and losses. Warrants and derivatives typically offer high gearing.

The portion of an option or warrant premium reflecting remaining life and volatility, as distinct from intrinsic value. It decays toward zero as expiry approaches.

The amount by which an option or warrant is in the money, being the underlying price minus the strike for a call. It is never negative and excludes time value.

The volatility level implied by an option's market price using a pricing model. Rising implied volatility raises option and warrant premiums even when the underlying is unchanged.

A standardised agreement to buy or sell an asset at a set price on a future date. It is exchange-traded, margined daily and usually closed out before delivery.

A market condition where futures prices exceed the spot price, usually reflecting storage and financing costs. It erodes returns for investors rolling long positions forward.

A market condition where futures prices trade below the spot price, often signalling tight nearby supply. Long holders may gain as contracts roll up toward spot.

The price for immediate delivery of a physical commodity such as gold, oil or maize. It anchors futures pricing and reflects current supply and demand.

A statistical measure of how widely returns scatter around their average. In finance it is the standard proxy for total risk or volatility.

The sensitivity of a security's returns to movements in the market, where the market has a beta of one. Values above one indicate amplified market risk.

Excess return above the risk-free rate divided by the standard deviation of returns. It measures reward per unit of total risk and allows comparison of portfolios.

A number between minus one and plus one showing how closely two return series move together. It underpins diversification and hedging decisions.

The price justified by fundamentals such as earnings, cash flows or arbitrage relationships, rather than current market sentiment. Traders compare it with market price to spot mispricing.

The average of the best bid and best offer, used as a reference mark for valuation. It sits between the prices at which a trader can actually deal.