Financial DT Test key terms

The gap between the highest price a buyer will pay and the lowest price a seller will accept for the same instrument at a given moment; it is a practical measure of trading cost and market liquidity.

A continuously updated record of resting buy and sell orders for an instrument, ranked by price and then by time of arrival, used by trading venues to match buyers with sellers.

A firm that continuously quotes both buy and sell prices for an instrument, earning the spread while carrying inventory risk, and often bound by venue or regulatory quoting obligations.

Software that splits and directs client orders across multiple trading venues according to price, speed, and fill probability, aiming for best execution under a defined routing policy.

A private trading venue where orders are matched without pre-trade quotes being displayed publicly, typically used by institutions to reduce market impact on large trades.

The adverse price movement caused by a trader's own order as it consumes available liquidity, which grows with order size relative to typical volume in the instrument.

The difference between the price expected when an order is submitted and the price actually achieved, arising from price movement, latency, or insufficient liquidity during execution.

The obligation to take reasonable steps to obtain the best possible result for client orders, weighing price, cost, speed, likelihood of execution, and size across available venues.

An instruction to buy or sell only at a specified price or better; it caps the price paid or received but does not guarantee that the trade will happen.

An instruction to trade immediately at the best price currently available; it prioritises speed of execution but leaves the final price uncertain.

A measure of a bond's price sensitivity to changes in interest rates, expressed in years; higher duration means a larger percentage price move for a given yield change.

A plot of yields on debt of equal credit quality against time to maturity, used to price bonds, gauge expectations of rates, and identify inversion or steepening signals.

The extra yield a bond offers over a comparable risk-free benchmark, reflecting the market's view of default risk, recovery prospects, and liquidity for that issuer.

A contract whose value is derived from an underlying asset, rate, or index, used to hedge exposures, gain leveraged access, or take a view on future prices.

A standardised, exchange-traded agreement to buy or sell an asset at a set price on a future date, marked to market daily and usually settled through a clearing house.

The price a buyer pays, and a seller receives, for an option contract; it reflects intrinsic value plus time value, which depends on volatility, rates, and time to expiry.

The future price variability for an underlying asset that is embedded in an option's observed market price; it rises when options become more expensive relative to model value.

A fund whose shares trade intraday on an exchange like a stock, typically tracking an index, with authorised participants creating and redeeming units to keep price near net asset value.

The total value of a fund's assets minus its liabilities, divided by the number of shares outstanding, used as the reference price for fund dealing and valuation.

The process by which authorised participants exchange baskets of underlying securities for new ETF shares, or return shares for securities, in large blocks at net asset value.

An entity that interposes itself between trade counterparties, becoming buyer to every seller and seller to every buyer, and manages resulting exposure through margin and default funds.

Collateral collected from a counterparty at the start of a derivative or securities financing relationship to cover potential future exposure if the counterparty defaults.

Collateral transferred daily to reflect changes in the mark-to-market value of open positions, settling accumulated gains and losses between counterparties.

Valuing positions at current market prices rather than historical cost, so that profit, loss, and collateral requirements reflect present conditions each reporting day.

A three-level classification of valuation inputs: quoted prices in active markets, observable inputs other than quoted prices, and unobservable inputs requiring significant judgement.

A statistical estimate of the maximum loss a portfolio could suffer over a set horizon at a given confidence level, widely used for limit setting and regulatory capital.

Evaluating portfolio or firm resilience under severe but plausible scenarios, such as sharp rate moves or liquidity freezes, to complement statistical risk measures.

The risk that a position cannot be sold quickly at a fair price, or that the firm cannot meet cash obligations as they fall due, forcing sales at a discount.

The risk that a borrower or counterparty fails to meet contractual payment obligations, leading to loss of principal, interest, or replacement cost on a derivative.

The exposure of a portfolio's value or income to movements in interest rates, commonly measured through duration, gap analysis, and repricing schedules.

The process of identifying clients, verifying their identity, and understanding their business and risk profile before and during the relationship, as required by anti-money-laundering rules.

A confidential filing made to the financial intelligence unit when a firm detects transactions or behaviour that may indicate money laundering, fraud, or terrorist financing.

Automated surveillance of client activity against rules and behavioural models to detect unusual patterns, which analysts then investigate and escalate where warranted.

The requirement to recommend or execute products that fit a client's objectives, risk tolerance, financial situation, and knowledge, documented through an appropriate assessment.

Situations where a firm's or employee's own interests could improperly influence advice or dealing for a client, requiring identification, disclosure, and management or avoidance.

The process of transferring securities against payment after execution, completing the legal transfer of ownership and discharging the obligations created by the trade.

A settlement mechanism linking the transfer of securities to the transfer of cash, so that one leg cannot complete without the other, reducing principal risk.

The standard period between trade execution and final settlement, such as one or two business days, defined by market convention and applied consistently to participants.

The delay between an event, such as a market data update or order submission, and the system's response; low latency is critical for electronic trading and risk checks.

A defined set of rules and protocols letting one software system request data or actions from another, widely used to connect trading, risk, and client reporting platforms.

On-demand delivery of computing resources over a network, offering elasticity and managed services while raising questions about data residency, resilience, and third-party oversight.

The risk of loss from failed processes, people, systems, or external events, including cyber incidents, processing errors, and outages in critical trading infrastructure.

Independent verification of prices and models used to value positions, including price testing against external sources and review of model inputs and assumptions.

The periodic submission of trade, position, and client data to regulators in prescribed formats and timelines, supported by data lineage and reconciliation controls.