Glossary of the terms found on this blog:

Buy SideTerm used to regroup institutions which main role is to buy investments on the markets: Asset managers, pension funds, hedge funds.

CollateralA collateral is a asset of some sort given to a counterpart to offset their exposure due to a positive market value and protect against the risk of default. For instance, if you hold a transaction with a market value of 100, the counterpart might transfer you 100 to mitigate any risk of default from their side. Note that the collateral type (cash, securities, commodities) is determined by the CSA agreed between the 2 parties.

CS: Currency Swaps. Similar to IRS except that each leg is in a different currency. Sometimes they’re forward starting meaning that the exchange rate between the 2 capitals is decided just prior to the swap starting or they can be resettable (called Marked to Market also) meaning that at each period the capital on one of the leg is reset to match the current FX rate. The advantage of both is to reduce the actual FX exposure of the trade.

CSACredit Support Annex. This agreement between 2 parties draws out the conditions for posting collateral: currencies, deal type, threshold, etc… A CSA mitigates the risk between 2 parties as if one of the 2 parties defaults, the collateral can be kept to protect against any loss of PL

DBA: DataBase Administrators. They’re the DB gatekeepers. You want to roll something in production, you need to enlarge the DB or any other DB request: you enter their kingdom and they will (usually) help you out.

DeltaThis is the main risk that a trader manages. But very interestingly it is different depending on which asset class you’re looking at. Delta for an IR trader is his Interest Rates exposure, for a FX trader his exposure to FX spot, for equities his exposure to prices. When someone mentions Delta to you, check that you’re sure about the asset class otherwise you might be looking at the wrong greeks.

Discount FactorsIt is a factor generated from the rate curve such as Forward cash flow * Discount Factor = Discounted date cash flows. The relationship between discount factors and discount rates can be linear DF=1/(1+r*t) , exponential DF=exp(-r*t), compounded DF=1/(1+r)^t. t being the time factor: day/basis. Basis can be 365 or 360. Other basis can be done but are far less frequent

GammaSensitivity of Delta to Price or convexity of your position to Price. See Delta as the nature of gamma depends on the asset class considered.

GreeksThey represent the risk measures. The most heard of are: Delta, Gamma, Vega and Theta. Delta being the sensitivity to the price, Gamma being the convexity to the price, Vega sensitivity to the volatility and Theta the sensitivity to time.

EOD: End of Day. It designs actually the processes which run at the end of the trading day: moving dates, generating market data for the new date, running reports, accounting entries generations. As a note, it’s a dreaded process as problems are most likely to occur during that time (and usually middle of the night).

IRSInterest Rates Swap. 2 legged transactions with one leg being a deposit on a fixed rate or floating index and the second leg being a borrow on a fixed rate or floating index. Note that exotic structures are possible on IRS (>2 legs, multiple indices, conditions for payout, etc…)

OISOvernight Index Swap. Often referred to OIS curve which is simply the curve used to project the O/N rates

Sell Side: In opposition to Buy side, the sell side represents financial institutions and mostly banks.

Swap points: Swap points are a measure of the FX forward rate. Fx Forward rate – Fx spot rate= swap points. Swap points are often multiplied by a factor depending on the quote but 10,000 is a frequent one.

STP:  Straight Through Processing. This acronym means that a transaction goes through the workflow at an accelerated rate due to trade criteria. For example: deal type (FX cash for example), amount, seniority of trader. This fast tracking means no manual reviewing or validation.

Swap points: Swap points are a measure of the FX forward rate. Fx Forward rate – Fx spot rate= swap points. Swap points are often multiplied by a factor depending on the quote but 10,000 is a frequent one.

ThetaSensitivity to time effect.

VannaSensitivity of Delta to volatility or Sensitivity of Vega to Delta.

VegaSensitivity to the volatility.

VolgaSensitivity of the volatility to the volatility or convexity due to volatility.

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