Sales and Trading terms

67
terms

Recruiting17

Bulge bracket: The largest global investment banks, which do every product at scale: Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America, and Citi, with Barclays, UBS, and Deutsche Bank often included.ExampleAn analyst in a bulge bracket industrials group might work on a bond issue, a $2bn acquisition, and a share buyback for the same client in one year, with the bank's lending and trading desks involved.See also Elite boutique, Middle market, Sell side
Coffee chat (informational interview): A short call or meeting, usually 15 to 30 minutes, with someone at a firm to learn about their job. It is the core of networking, and a good one ends with a referral or another name to contact.ExampleA sophomore emails a second-year analyst from her school, gets 20 minutes on Thursday, asks three questions about the group, sends a thank-you that night, and is introduced to a VP the next week.See also Networking, Fit interview
Diversity program: An early insight program or internship track for students from underrepresented groups. Many open earlier than the main summer analyst program, some to freshmen and sophomores, and some lead straight to an internship offer.ExampleA bank's sophomore diversity program takes applications in the fall, runs a two-day event in spring, and gives strong participants an early interview for the junior summer analyst class.See also Sophomore program, Summer analyst
Fit interview (behavioral interview): The questions about you: walk me through your resume, why this firm, why this path, a time you led or failed. Every finance process has them, and weak answers sink otherwise strong technical candidates.ExampleWhy investment banking? A strong answer names something you did (a valuation for your investment club), what you liked about the work, and why this seat gives you more of it.See also Technical interview, Superday, HireVue
Front office: Revenue-generating roles that face clients or take risk: bankers, traders, salespeople, research analysts, and investors. Most recruiting conversations are about front office seats.ExampleA trader on the rates desk is front office. The product controller who reconciles her P&L each night is middle office, and the engineer running the settlement system is back office.See also Middle office, Sell side, Buy side
HireVue: A recorded video interview platform. You see a question, get a short time to prepare, often about 30 seconds, then answer on camera within a time limit. Many banks use it as the first screen after the application.ExampleTell me about a time your team disagreed. You get 30 seconds to think, two minutes to answer, and one take before the next question appears.See also Fit interview, Online assessment, Superday
Middle office: Roles that support the front office without facing clients or taking risk, such as risk management, product control, and compliance. Moving into the front office later is possible but takes deliberate effort.ExampleA risk manager tells a trader his position has breached the desk's $5m VaR limit and must be cut by end of day. She is middle office: no clients and no P&L of her own.See also Front office
Networking: Building relationships with people at firms through emails, coffee chats, and events, so someone knows your name when applications open. It matters more in finance than in most industries, especially from schools where banks do not recruit on campus.ExampleTwenty emails in September lead to eight calls, and two of those turn into referrals. When the program opens in January, two people at the firm can put your name forward.See also Coffee chat, On-campus recruiting
On-campus recruiting (OCR): The process where firms post jobs and interview through your school's career center. Schools where firms recruit heavily get the most slots; elsewhere, networking and direct applications carry more weight.ExampleAt a school with OCR, a bank posts its role on the career portal, collects resumes, and runs first rounds in campus interview rooms. At a school without it, you apply online and lean on referrals.See also Networking, Summer analyst
Online assessment (OA): A timed online test sent after you apply: numerical reasoning, logic games, or personality questions for banks, and math or coding problems for quant roles.ExampleA bank's online assessment gives you 20 minutes for 18 numerical questions, such as working out a company's year-on-year revenue growth from a bar chart.See also HireVue, Superday
Return offer: A full-time job offer given to an intern at the end of the summer. At most banks it is the main path into a full-time analyst job, so the internship works like a ten-week interview.ExampleA class of 80 summer analysts is reviewed in August. 65 return offers is an 81% rate, and the 15 without one recruit again in the fall.See also Summer analyst, Exploding offer
Rolling admissions (rolling applications, rolling basis): Reviewing applications as they arrive and filling seats before the posted deadline. Applying in the first week or two after a program opens can matter more than the deadline itself.ExampleA program opens January 10 with a March 1 deadline. If most interview slots fill by mid-February, an application sent February 20 arrives after most of the decisions are made.See also Summer analyst, Online assessment
Sell side: Firms that sell services and securities to companies and investors: investment banks, sales and trading desks, and equity research. Many people start here and later move to the buy side.ExampleAn equity research analyst at a bank raises her price target on a retailer from $80 to $95. Her readers are buy-side investors, and her bank earns when they trade through its desks.See also Buy side, Bulge bracket, Front office
Sophomore program: An early program for second-year students, such as an insight week, a spring program, or a sophomore internship. Some feed directly into the junior summer analyst process, which now recruits a year or more ahead.ExampleA bank runs a three-day spring insight program for 60 sophomores. Strong participants get fast-tracked into interviews for the junior summer analyst class.See also Diversity program, Summer analyst
Summer analyst: The standard 10-week internship at banks and many funds, held the summer between junior and senior year. Recruiting for it now starts during sophomore year.ExampleA student in the class of 2029 interns as a summer analyst in summer 2028, between junior and senior year, after applying during sophomore year.See also Return offer, Sophomore program, Superday
Superday: The final round: several back-to-back interviews in one day, in person or virtual, mixing fit and technical questions. Offers often come within a few days.ExampleFour 30-minute interviews back to back: an MD on fit, a VP on a DCF walk-through, an associate on accounting, and an analyst on why this group. The offer call comes two days later.See also Fit interview, Technical interview, HireVue
Technical interview: Questions that test finance knowledge: accounting, valuation, DCF, and LBO for banking and PE; markets for trading; probability and mental math for quant. Expect prompts like walk me through a DCF, or how does $10 of depreciation flow through the three statements.ExampleDepreciation rises $10 at a 25% tax rate. Net income falls $7.50; cash rises $2.50 after adding back the $10; PP&E falls $10; assets fall $7.50 and so does retained earnings.See also Fit interview, Discounted cash flow, Paper LBO

Trading and products16

Bid-ask spread: The gap between the highest price a buyer will pay (the bid) and the lowest a seller will accept (the ask). A stock quoted 100.00 bid, 100.02 ask has a 2 cent spread, which is roughly what a market maker earns for providing liquidity.ExampleA bond quoted 99.50 bid, 99.75 ask: buying $10m face costs $9,975,000 and selling it straight back brings $9,950,000. Crossing the spread both ways cost $25,000.See also Market maker, High-frequency trading
Call option: The right, but not the obligation, to buy an asset at a set strike price. A call with a $50 strike on a stock trading at $60 at expiry is worth $10, minus whatever premium you paid for it.ExamplePay $3 for a call with a $50 strike. With the stock at $58 at expiry, it is worth $8 and you net $5; below $50 it expires worthless and you lose the $3. Breakeven is $53.See also Put option, Delta, Black-Scholes model
Convexity: How much a bond's duration changes as yields move, the curve in the price and yield relationship. A plain bond has positive convexity: it gains more when yields fall than it loses when they rise by the same amount.ExampleA bond with a duration of 10 and positive convexity might gain about 10.6% when yields fall 1% and lose only about 9.4% when they rise 1%. Duration alone predicts 10% both ways.See also Duration, DV01
Delta: How much an option's price changes for a $1 move in the underlying. A call with a delta of 0.5 gains about 50 cents when the stock rises $1. Traders hedge by holding the opposite delta in the underlying.ExampleYou sell 100 call contracts, 10,000 shares' worth, with a delta of 0.40. To be flat you buy 4,000 shares; if delta rises to 0.55, you buy 1,500 more.See also Gamma, Hedging, Call option
Duration (modified duration): A bond's sensitivity to interest rates: the approximate percent price change for a one percentage point move in yield. A bond with a duration of 7 falls about 7% if yields rise 1%.ExampleA $20m bond position with a duration of 5 loses about $1m if yields rise 1%, and gains about $200,000 if they fall 20 bps.See also DV01, Convexity, Treasury securities
DV01 (PV01): Dollar value of a basis point: how many dollars a position gains or loses when yields move 0.01%. A $10 million bond position priced at par with a duration of 7 has a DV01 of about $10,000,000 x 7 x 0.0001 = $7,000.ExampleA trader is long $50m of 10-year notes with a DV01 of $42,000. A 5 bp fall in yields makes about 5 x $42,000 = $210,000.See also Duration, Basis point, Hedging
FICC: Fixed income, currencies, and commodities: the half of a bank's markets division that trades rates, credit, FX, commodities, and their derivatives. The other half is equities.ExampleA rates trader quoting Treasuries and swaps, an FX trader making markets in euro-dollar, and a commodities desk hedging an airline's jet fuel all sit in FICC. The cash equities desk down the hall does not.See also Interest rate swap, Market maker
Futures contract (futures): A standardized, exchange-traded agreement to buy or sell an asset at a set price on a future date. Gains and losses settle daily through margin, which makes futures cheap to trade and convenient for hedging.ExampleBuy one crude oil contract, 1,000 barrels, at $70. If it settles at $72 that day, $2,000 goes into your margin account; if it settles at $68, $2,000 comes out.See also Hedging, Repo
Gamma: How much an option's delta changes for a $1 move in the underlying. Gamma is highest for options near the strike close to expiry, which means their hedges need frequent adjusting.ExampleA call has a delta of 0.50 and a gamma of 0.05. If the stock rises $2, delta goes to about 0.60, so a trader long the call and short stock at 0.50 must sell more stock to stay hedged.See also Delta, Implied volatility
Hedging: Taking an offsetting position to reduce a risk you do not want. A trader who owns a corporate bond can sell Treasury futures so that a rate move hits both sides and roughly cancels, leaving mostly the credit risk.ExampleAn airline will buy 10m gallons of jet fuel in six months and fears a price rise. It buys fuel futures today; if prices climb $0.50 a gallon, the futures gain about $5m to offset the higher bill.See also Delta, DV01, Futures contract
Implied volatility (implied vol): The volatility the market is pricing into an option, backed out of the option's price with a model like Black-Scholes. Options traders think of themselves as buying and selling volatility, so they quote in vol rather than dollars.ExampleA call priced at $4.00 implies 30% vol. The next day, stock unchanged, it trades at $4.60, implying 35%. Traders say vol went up 5 points, not that the option rose 60 cents.See also Black-Scholes model, VIX, Gamma
Interest rate swap: A contract to exchange fixed-rate interest payments for floating-rate ones on a notional amount. A company with a SOFR-based loan can pay fixed and receive floating on a swap to lock in its borrowing cost.ExampleA company with a $100m loan at SOFR + 2% enters a swap where it pays 3.8% fixed and receives SOFR. The SOFR legs cancel, so its all-in cost is locked at 5.8% whatever SOFR does.See also Secured Overnight Financing Rate, DV01, FICC
Market maker: A firm that continuously quotes prices to buy and sell, earning the bid-ask spread while managing whatever inventory it ends up holding. Electronic firms like Citadel Securities and Jane Street and bank flow desks all make markets.ExampleA market maker quotes a stock at 50.00 bid, 50.02 ask. Buying 10,000 shares from one client and selling them to another earns $200; if the price drops before it sells, the inventory loss can wipe that out.See also Bid-ask spread, Market-making game, High-frequency trading
Put option: The right, but not the obligation, to sell an asset at a set strike price. A put with a $50 strike on a stock trading at $40 at expiry is worth $10. Investors buy puts as insurance against a drop.ExampleOwn 1,000 shares at $80 and buy $75 puts for $2 a share. If the stock falls to $60, the puts pay $15 a share, capping your loss at $7 a share including the premium.See also Call option, Hedging
Repo (repurchase agreement): A short-term secured loan: one side sells a security, usually a Treasury, and agrees to buy it back later at a slightly higher price. The difference is the interest. Repo is how dealers and funds finance their positions.ExampleA fund sells $100m of Treasuries to a dealer and agrees to buy them back tomorrow for $100,012,000. The $12,000 is one day of interest, about 4.3% a year on a 360-day basis.See also Secured Overnight Financing Rate, Treasury securities
Short selling (shorting): Borrowing a stock, selling it, and buying it back later to return it, profiting if the price falls. Losses have no ceiling, because the price can keep rising.ExampleShort 1,000 shares at $50 and you receive $50,000. Buy them back at $40 and you keep $10,000 before borrow costs; if the stock goes to $90 instead, you lose $40,000.See also Long/short equity, Hedging

Markets and macro15

Basis point (bps): One hundredth of a percentage point, or 0.01%. A rate that moves from 4.25% to 4.50% has risen 25 basis points.ExampleA loan priced at SOFR + 350 bps with SOFR at 4.30% pays 7.80%. On a $100m loan, each basis point is worth $10,000 a year.See also DV01, Credit spread
Bull and bear markets (bull market, bear market): A bull market is a sustained rise in prices. A bear market is commonly defined as a fall of 20% or more from a recent high.ExampleAn index peaks at 5,000 and falls to 3,900, a 22% drop, so it is in a bear market. A fall to 4,200, 16%, would only be a correction.See also Risk-on and risk-off, VIX
Consumer price index (CPI): The monthly government measure of price changes for a basket of consumer goods and services, the headline US inflation number. Core CPI leaves out food and energy. The Fed's 2% target is set on a related index, PCE.ExampleCPI moving from 300.0 to 309.0 over a year is 3.0% inflation. If core CPI rose 3.5% over the same year, food and energy prices rose more slowly than everything else.See also Federal Open Market Committee, Hawkish and dovish, Federal funds rate
Federal funds rate (fed funds): The overnight rate at which banks lend reserves to each other, which the Federal Reserve steers within a target range. It anchors short-term borrowing costs across the economy.ExampleThe FOMC cuts the target range from 4.25% to 4.50% down to 4.00% to 4.25%. Loans priced off SOFR reset about 25 bps lower within days, and money market fund yields follow.See also Federal Open Market Committee, Secured Overnight Financing Rate, Yield curve
Federal Open Market Committee (FOMC): The Fed committee that sets the federal funds target range. It meets eight times a year, and traders read the statement, the press conference, and the dot plot of members' rate projections closely.ExampleThe statement leaves the target range at 4.00% to 4.25%, but the dot plot shows two cuts next year instead of three. Two-year yields rise as traders price fewer cuts.See also Federal funds rate, Hawkish and dovish, Quantitative easing
Gross domestic product (GDP): The total value of goods and services produced in a country over a period. US GDP is reported quarterly as an annualized growth rate. Two negative quarters in a row is common shorthand for a recession, though not the official definition.ExampleReal GDP grows 0.5% in a quarter. The headline reports it annualized, about 2.0%, since 1.005 to the fourth power is about 1.020.See also Nonfarm payrolls, Consumer price index
Hawkish and dovish (hawkish, dovish): Hawkish means leaning toward higher rates to fight inflation; dovish means leaning toward lower rates to support growth and jobs. Markets react to small shifts in a Fed official's tone.ExampleA Fed governor says inflation is still too high and the Fed may need to do more. That is hawkish, and two-year Treasury yields can rise a few basis points within minutes.See also Federal Open Market Committee, Federal funds rate, Consumer price index
Inverted yield curve: When short-term Treasury yields are above long-term ones, for example the 2-year yielding more than the 10-year. It has come before most US recessions, though the lag is long and varies.ExampleThe 2-year Treasury yields 4.8% and the 10-year yields 4.2%, so the 2s10s spread is -60 bps. The curve is inverted.See also Yield curve, Treasury securities
Nonfarm payrolls (NFP, jobs report): The monthly count of US jobs added outside farming, published by the Bureau of Labor Statistics, usually on the first Friday of the month. It is one of the biggest scheduled market-moving releases.ExampleEconomists expect 150,000 jobs and the report shows 250,000. Traders read a stronger economy and fewer rate cuts, and Treasury yields jump seconds after the 8:30 a.m. Eastern release.See also Gross domestic product, Federal Open Market Committee
Quantitative easing (QE): A central bank buying large amounts of government bonds and mortgage securities to push long-term rates down when short-term rates are already near zero. Shrinking those holdings again is called quantitative tightening.ExampleA central bank buys $80bn of Treasuries a month. With fewer bonds left for everyone else, prices rise and long-term yields fall, which pulls mortgage rates down too.See also Federal Open Market Committee, Treasury securities, Yield curve
Risk-on and risk-off (risk-on, risk-off): Shorthand for market mood. Risk-on means investors are buying stocks, high-yield bonds, and emerging markets; risk-off means they are moving into Treasuries, the dollar, gold, or the yen.ExampleOn a risk-off day, the S&P 500 falls 2%, high-yield spreads widen 25 bps, the 10-year Treasury yield drops 10 bps, and the yen strengthens.See also VIX, Bull and bear markets
Secured Overnight Financing Rate (SOFR): The benchmark US overnight rate, based on Treasury repo trades and published by the New York Fed. It replaced LIBOR, so most US floating-rate loans now pay SOFR plus a spread.ExampleA leveraged loan pays SOFR + 3.25%. With SOFR at 4.30% the borrower pays 7.55%; if SOFR falls to 3.80%, the rate drops to 7.05% with no new paperwork.See also Repo, Interest rate swap, Federal funds rate
Treasury securities (Treasuries): Debt issued by the US government: bills (one year or less), notes (2 to 10 years), and bonds (20 and 30 years). Their yields are the risk-free benchmark most other assets are priced against.ExampleA 3-month bill bought at $98.90 pays $100 at maturity: $1.10 of interest, about 4.4% a year. A 10-year note pays a coupon every six months instead and returns its face value at maturity.See also Yield curve, Credit spread, Duration
VIX: Cboe's index of expected 30-day volatility in the S&P 500, calculated from option prices. It tends to jump when stocks fall, which is why people call it the fear gauge.ExampleA VIX of 16 means options price the S&P 500 to move about 16% a year, or roughly 1% a day, since 16 divided by the square root of 252 trading days is about 1.See also Implied volatility, Risk-on and risk-off
Yield curve: A chart of Treasury yields across maturities, from one month to 30 years. It normally slopes upward because lenders want more return for locking money up longer.ExampleThe 2-year at 3.5%, the 10-year at 4.2%, and the 30-year at 4.7% make a normal, upward-sloping curve. The 10-year minus the 2-year, 70 bps, is the 2s10s spread traders quote.See also Inverted yield curve, Treasury securities, Federal funds rate

Quant12

Arbitrage: Locking in a riskless profit from prices that are inconsistent with each other, by buying the cheap side and selling the rich one at the same time. True arbitrage is rare and quickly competed away; most trades called arbitrage carry some risk.ExampleA share trades at $40.00 on one exchange and $40.05 on another. Buying on the first and selling on the second locks in $0.05 a share before fees.See also Statistical arbitrage, Put-call parity, Market maker
Black-Scholes model (Black-Scholes-Merton): The classic formula for pricing European options from the stock price, strike, time to expiry, risk-free rate, and volatility. Its assumptions, such as constant volatility and no jumps, fail in practice, but it is the common language of options markets.ExampleA one-year at-the-money call on a $100 stock with 20% vol and a 0% rate is worth about $8. A quick check: 0.4 x price x vol x the square root of time = 0.4 x 100 x 0.2 x 1 = $8.See also Implied volatility, Call option, Monte Carlo simulation
Conditional probability: The chance of an event once you know another has happened: P(A given B) = P(A and B) / P(B). Most quant brainteasers turn on spotting what you have been told and shrinking the sample space to it.ExampleTwo dice: given the first die is even, what is the chance the sum is 8? Of 18 equally likely pairs, three work (2 and 6, 4 and 4, 6 and 2), so 3/18 = 1/6.See also Bayes' theorem, Expected value
Correlation: A number from -1 to 1 for how closely two quantities move together. Below 1, combining assets lowers portfolio risk, which is the arithmetic behind diversification.ExampleTwo assets each with 20% volatility, held 50/50 with zero correlation, give a portfolio volatility of the square root of (0.25 x 0.04 + 0.25 x 0.04), about 14.1%, not 20%.See also Standard deviation, Beta, Linear regression
Expected value: The probability-weighted average outcome. A bet that pays $10 with probability 0.3 and nothing otherwise has an expected value of $3. Quant interviews test it constantly with dice, cards, and betting games.ExampleRoll one die and get paid the number in dollars: the expected value is (1 + 2 + 3 + 4 + 5 + 6) / 6 = $3.50. Pay $3 to play and you have a 50 cent edge per roll.See also Kelly criterion, Market-making game
Market-making game: A quant trading interview exercise: the interviewer asks you for a two-sided market on an uncertain number, like the sum of three dice, and trades against you. It tests estimation, updating on new information, and risk control under pressure.ExampleAsked for a market on the sum of three dice, you quote 9 at 12 around the 10.5 expected value. Told one die shows a 6, the expected sum is 6 + 7 = 13, so you move to 12 at 14.See also Market maker, Expected value, Quant trader
Order book (limit order book): The live list of resting buy orders (bids) and sell orders (offers) for a security, by price and size. A market order fills against the best prices first and walks down the book if it is larger than the size shown there.ExampleBest offer 100.02 for 300 shares, next 100.05 for 1,000. A market buy for 400 fills 300 at 100.02 and 100 at 100.05.See also Bid-ask spread, Market maker, Slippage
Put-call parity: For European options with the same strike and expiry: call minus put equals the stock price minus the present value of the strike. If prices break it, a riskless trade locks in the difference.ExampleStock at 100, strike 100, rates at zero, so call and put should cost the same. If the call is 7 and the put 5, sell the call, buy the put, and buy the stock for 98: the package is worth 100 at expiry whatever happens.See also Call option, Put option, Arbitrage
Quant trader: A trader who runs systematic or semi-systematic strategies: setting parameters, managing risk, and making quick calls with models in hand. Firms like Jane Street, SIG, and Optiver hire undergraduates straight into this seat.ExampleA trader runs an options market-making strategy. When a large order moves implied vol 3 points in a minute, she decides whether to widen quotes, cut size, or hedge with the underlying.See also Quant researcher, Market-making game, Market maker
Random walk: A path built from independent random steps. Its expected position stays where it started, but its spread grows with the square root of the number of steps. It is the simplest model of a price with no predictable direction.ExampleFlip a fair coin 100 times, gaining $1 on heads and losing $1 on tails. The expected result is $0 and the standard deviation is the square root of 100, or $10.See also Standard deviation, Mean reversion, Monte Carlo simulation
Slippage: The gap between the price a trade was expected to get and the price it actually got, from the spread, market impact, or prices moving before the fill. Backtests that ignore it overstate returns.ExampleA strategy expects to buy 10,000 shares at $50.00 and averages $50.06. Slippage is $0.06 a share, or $600 on the trade.See also Order book, Backtest, Bid-ask spread
Standard deviation (variance): How widely outcomes spread around their average: the square root of the variance, which is the average squared distance from the mean. For returns it is what traders call volatility, and it scales with the square root of time.ExampleA stock with a 1% daily standard deviation has about 1% x the square root of 252, or roughly 16%, annual volatility.See also Correlation, Sharpe ratio, Implied volatility

Credit and restructuring4

Credit rating (investment grade): A grade from an agency such as S&P, Moody's, or Fitch on how likely a borrower is to default. BBB- at S&P (Baa3 at Moody's) and above is investment grade; anything lower is high yield.ExampleAn issuer cut from BBB- to BB+ falls out of investment grade. Funds that may hold only investment grade bonds have to sell, and its spread can widen sharply in days.See also High-yield bond, Credit spread
Credit spread: The extra yield a bond pays over a Treasury of similar maturity, to compensate for default risk and lower liquidity. A corporate bond yielding 6.5% when the matching Treasury yields 4.5% has a 200 basis point spread.ExampleA five-year BB bond yields 7.25% while the five-year Treasury yields 4.00%: a 325 bp spread. If spreads tighten 50 bps with Treasuries unchanged, the bond yields 6.75%.See also Basis point, Credit rating, Yield to maturity
High-yield bond (junk bond, HY): A bond rated below investment grade, meaning below BBB- at S&P. It pays more interest because default risk is higher, and it is often issued to fund leveraged buyouts.ExampleA sponsor funds an LBO with $500m of 8-year B-rated bonds at 8.5% while investment grade bonds of similar maturity pay 5.5%. The 300 bp gap is the price of the extra default risk.See also Credit rating, Credit spread, Leveraged buyout
Yield to maturity (YTM): The annual return a bondholder earns buying at today's price and holding to maturity, assuming every payment is made. Price and yield move in opposite directions, so a bond bought below par yields more than its coupon.ExampleA one-year bond with a 5% coupon trades at 98 and pays 105 at maturity. Its yield to maturity is 105 / 98 - 1, about 7.1%, above the coupon because it was bought below par.See also Credit spread, Duration, Distressed debt

Funds and investing2

Exchange-traded fund (ETF): A fund that holds a basket of securities and trades on an exchange like a single stock. Most track an index at low cost, such as an S&P 500 fund.ExampleAn S&P 500 ETF with a 0.03% expense ratio costs $3 a year on $10,000 invested, and you can buy or sell it at any point in the trading day like a single stock.See also Assets under management
Global macro: A hedge fund strategy that bets on big economic themes through rates, currencies, commodities, and equity indexes. A macro trader might buy Treasuries expecting the Fed to cut faster than the market is pricing.ExampleA macro PM expects the Fed to cut 100 bps next year while futures price only 50. She buys two-year Treasury futures; if the extra cuts arrive, two-year yields fall and the position pays.See also Hedge fund, Federal Open Market Committee, Treasury securities

M&A and deals1

Underwriting: A bank's role in a securities offering: it commits to buy or sell the shares or bonds, markets them to investors, and takes on risk in exchange for a fee called the underwriting spread.ExampleBanks agree to buy $1bn of bonds at 99.0 and sell them to investors at 100.0. The 1 point is a $10m spread; if demand is weak and they have to sell below 99.0, they take the loss.See also Initial public offering, Follow-on offering, High-yield bond

Recruiting17

Bulge bracket

The largest global investment banks, which do every product at scale: Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America, and Citi, with Barclays, UBS, and Deutsche Bank often included.ExampleAn analyst in a bulge bracket industrials group might work on a bond issue, a $2bn acquisition, and a share buyback for the same client in one year, with the bank's lending and trading desks involved.See also Elite boutique, Middle market, Sell side

Coffee chat (informational interview)

A short call or meeting, usually 15 to 30 minutes, with someone at a firm to learn about their job. It is the core of networking, and a good one ends with a referral or another name to contact.ExampleA sophomore emails a second-year analyst from her school, gets 20 minutes on Thursday, asks three questions about the group, sends a thank-you that night, and is introduced to a VP the next week.See also Networking, Fit interview

Diversity program

An early insight program or internship track for students from underrepresented groups. Many open earlier than the main summer analyst program, some to freshmen and sophomores, and some lead straight to an internship offer.ExampleA bank's sophomore diversity program takes applications in the fall, runs a two-day event in spring, and gives strong participants an early interview for the junior summer analyst class.See also Sophomore program, Summer analyst

Fit interview (behavioral interview)

The questions about you: walk me through your resume, why this firm, why this path, a time you led or failed. Every finance process has them, and weak answers sink otherwise strong technical candidates.ExampleWhy investment banking? A strong answer names something you did (a valuation for your investment club), what you liked about the work, and why this seat gives you more of it.See also Technical interview, Superday, HireVue

Front office

Revenue-generating roles that face clients or take risk: bankers, traders, salespeople, research analysts, and investors. Most recruiting conversations are about front office seats.ExampleA trader on the rates desk is front office. The product controller who reconciles her P&L each night is middle office, and the engineer running the settlement system is back office.See also Middle office, Sell side, Buy side

HireVue

A recorded video interview platform. You see a question, get a short time to prepare, often about 30 seconds, then answer on camera within a time limit. Many banks use it as the first screen after the application.ExampleTell me about a time your team disagreed. You get 30 seconds to think, two minutes to answer, and one take before the next question appears.See also Fit interview, Online assessment, Superday

Middle office

Roles that support the front office without facing clients or taking risk, such as risk management, product control, and compliance. Moving into the front office later is possible but takes deliberate effort.ExampleA risk manager tells a trader his position has breached the desk's $5m VaR limit and must be cut by end of day. She is middle office: no clients and no P&L of her own.See also Front office

Networking

Building relationships with people at firms through emails, coffee chats, and events, so someone knows your name when applications open. It matters more in finance than in most industries, especially from schools where banks do not recruit on campus.ExampleTwenty emails in September lead to eight calls, and two of those turn into referrals. When the program opens in January, two people at the firm can put your name forward.See also Coffee chat, On-campus recruiting

On-campus recruiting (OCR)

The process where firms post jobs and interview through your school's career center. Schools where firms recruit heavily get the most slots; elsewhere, networking and direct applications carry more weight.ExampleAt a school with OCR, a bank posts its role on the career portal, collects resumes, and runs first rounds in campus interview rooms. At a school without it, you apply online and lean on referrals.See also Networking, Summer analyst

Online assessment (OA)

A timed online test sent after you apply: numerical reasoning, logic games, or personality questions for banks, and math or coding problems for quant roles.ExampleA bank's online assessment gives you 20 minutes for 18 numerical questions, such as working out a company's year-on-year revenue growth from a bar chart.See also HireVue, Superday

Return offer

A full-time job offer given to an intern at the end of the summer. At most banks it is the main path into a full-time analyst job, so the internship works like a ten-week interview.ExampleA class of 80 summer analysts is reviewed in August. 65 return offers is an 81% rate, and the 15 without one recruit again in the fall.See also Summer analyst, Exploding offer

Rolling admissions (rolling applications, rolling basis)

Reviewing applications as they arrive and filling seats before the posted deadline. Applying in the first week or two after a program opens can matter more than the deadline itself.ExampleA program opens January 10 with a March 1 deadline. If most interview slots fill by mid-February, an application sent February 20 arrives after most of the decisions are made.See also Summer analyst, Online assessment

Sell side

Firms that sell services and securities to companies and investors: investment banks, sales and trading desks, and equity research. Many people start here and later move to the buy side.ExampleAn equity research analyst at a bank raises her price target on a retailer from $80 to $95. Her readers are buy-side investors, and her bank earns when they trade through its desks.See also Buy side, Bulge bracket, Front office

Sophomore program

An early program for second-year students, such as an insight week, a spring program, or a sophomore internship. Some feed directly into the junior summer analyst process, which now recruits a year or more ahead.ExampleA bank runs a three-day spring insight program for 60 sophomores. Strong participants get fast-tracked into interviews for the junior summer analyst class.See also Diversity program, Summer analyst

Summer analyst

The standard 10-week internship at banks and many funds, held the summer between junior and senior year. Recruiting for it now starts during sophomore year.ExampleA student in the class of 2029 interns as a summer analyst in summer 2028, between junior and senior year, after applying during sophomore year.See also Return offer, Sophomore program, Superday

Superday

The final round: several back-to-back interviews in one day, in person or virtual, mixing fit and technical questions. Offers often come within a few days.ExampleFour 30-minute interviews back to back: an MD on fit, a VP on a DCF walk-through, an associate on accounting, and an analyst on why this group. The offer call comes two days later.See also Fit interview, Technical interview, HireVue

Technical interview

Questions that test finance knowledge: accounting, valuation, DCF, and LBO for banking and PE; markets for trading; probability and mental math for quant. Expect prompts like walk me through a DCF, or how does $10 of depreciation flow through the three statements.ExampleDepreciation rises $10 at a 25% tax rate. Net income falls $7.50; cash rises $2.50 after adding back the $10; PP&E falls $10; assets fall $7.50 and so does retained earnings.See also Fit interview, Discounted cash flow, Paper LBO

Trading and products16

Bid-ask spread

The gap between the highest price a buyer will pay (the bid) and the lowest a seller will accept (the ask). A stock quoted 100.00 bid, 100.02 ask has a 2 cent spread, which is roughly what a market maker earns for providing liquidity.ExampleA bond quoted 99.50 bid, 99.75 ask: buying $10m face costs $9,975,000 and selling it straight back brings $9,950,000. Crossing the spread both ways cost $25,000.See also Market maker, High-frequency trading

Call option

The right, but not the obligation, to buy an asset at a set strike price. A call with a $50 strike on a stock trading at $60 at expiry is worth $10, minus whatever premium you paid for it.ExamplePay $3 for a call with a $50 strike. With the stock at $58 at expiry, it is worth $8 and you net $5; below $50 it expires worthless and you lose the $3. Breakeven is $53.See also Put option, Delta, Black-Scholes model

Convexity

How much a bond's duration changes as yields move, the curve in the price and yield relationship. A plain bond has positive convexity: it gains more when yields fall than it loses when they rise by the same amount.ExampleA bond with a duration of 10 and positive convexity might gain about 10.6% when yields fall 1% and lose only about 9.4% when they rise 1%. Duration alone predicts 10% both ways.See also Duration, DV01

Delta

How much an option's price changes for a $1 move in the underlying. A call with a delta of 0.5 gains about 50 cents when the stock rises $1. Traders hedge by holding the opposite delta in the underlying.ExampleYou sell 100 call contracts, 10,000 shares' worth, with a delta of 0.40. To be flat you buy 4,000 shares; if delta rises to 0.55, you buy 1,500 more.See also Gamma, Hedging, Call option

Duration (modified duration)

A bond's sensitivity to interest rates: the approximate percent price change for a one percentage point move in yield. A bond with a duration of 7 falls about 7% if yields rise 1%.ExampleA $20m bond position with a duration of 5 loses about $1m if yields rise 1%, and gains about $200,000 if they fall 20 bps.See also DV01, Convexity, Treasury securities

DV01 (PV01)

Dollar value of a basis point: how many dollars a position gains or loses when yields move 0.01%. A $10 million bond position priced at par with a duration of 7 has a DV01 of about $10,000,000 x 7 x 0.0001 = $7,000.ExampleA trader is long $50m of 10-year notes with a DV01 of $42,000. A 5 bp fall in yields makes about 5 x $42,000 = $210,000.See also Duration, Basis point, Hedging

FICC

Fixed income, currencies, and commodities: the half of a bank's markets division that trades rates, credit, FX, commodities, and their derivatives. The other half is equities.ExampleA rates trader quoting Treasuries and swaps, an FX trader making markets in euro-dollar, and a commodities desk hedging an airline's jet fuel all sit in FICC. The cash equities desk down the hall does not.See also Interest rate swap, Market maker

Futures contract (futures)

A standardized, exchange-traded agreement to buy or sell an asset at a set price on a future date. Gains and losses settle daily through margin, which makes futures cheap to trade and convenient for hedging.ExampleBuy one crude oil contract, 1,000 barrels, at $70. If it settles at $72 that day, $2,000 goes into your margin account; if it settles at $68, $2,000 comes out.See also Hedging, Repo

Gamma

How much an option's delta changes for a $1 move in the underlying. Gamma is highest for options near the strike close to expiry, which means their hedges need frequent adjusting.ExampleA call has a delta of 0.50 and a gamma of 0.05. If the stock rises $2, delta goes to about 0.60, so a trader long the call and short stock at 0.50 must sell more stock to stay hedged.See also Delta, Implied volatility

Hedging

Taking an offsetting position to reduce a risk you do not want. A trader who owns a corporate bond can sell Treasury futures so that a rate move hits both sides and roughly cancels, leaving mostly the credit risk.ExampleAn airline will buy 10m gallons of jet fuel in six months and fears a price rise. It buys fuel futures today; if prices climb $0.50 a gallon, the futures gain about $5m to offset the higher bill.See also Delta, DV01, Futures contract

Implied volatility (implied vol)

The volatility the market is pricing into an option, backed out of the option's price with a model like Black-Scholes. Options traders think of themselves as buying and selling volatility, so they quote in vol rather than dollars.ExampleA call priced at $4.00 implies 30% vol. The next day, stock unchanged, it trades at $4.60, implying 35%. Traders say vol went up 5 points, not that the option rose 60 cents.See also Black-Scholes model, VIX, Gamma

Interest rate swap

A contract to exchange fixed-rate interest payments for floating-rate ones on a notional amount. A company with a SOFR-based loan can pay fixed and receive floating on a swap to lock in its borrowing cost.ExampleA company with a $100m loan at SOFR + 2% enters a swap where it pays 3.8% fixed and receives SOFR. The SOFR legs cancel, so its all-in cost is locked at 5.8% whatever SOFR does.See also Secured Overnight Financing Rate, DV01, FICC

Market maker

A firm that continuously quotes prices to buy and sell, earning the bid-ask spread while managing whatever inventory it ends up holding. Electronic firms like Citadel Securities and Jane Street and bank flow desks all make markets.ExampleA market maker quotes a stock at 50.00 bid, 50.02 ask. Buying 10,000 shares from one client and selling them to another earns $200; if the price drops before it sells, the inventory loss can wipe that out.See also Bid-ask spread, Market-making game, High-frequency trading

Put option

The right, but not the obligation, to sell an asset at a set strike price. A put with a $50 strike on a stock trading at $40 at expiry is worth $10. Investors buy puts as insurance against a drop.ExampleOwn 1,000 shares at $80 and buy $75 puts for $2 a share. If the stock falls to $60, the puts pay $15 a share, capping your loss at $7 a share including the premium.See also Call option, Hedging

Repo (repurchase agreement)

A short-term secured loan: one side sells a security, usually a Treasury, and agrees to buy it back later at a slightly higher price. The difference is the interest. Repo is how dealers and funds finance their positions.ExampleA fund sells $100m of Treasuries to a dealer and agrees to buy them back tomorrow for $100,012,000. The $12,000 is one day of interest, about 4.3% a year on a 360-day basis.See also Secured Overnight Financing Rate, Treasury securities

Short selling (shorting)

Borrowing a stock, selling it, and buying it back later to return it, profiting if the price falls. Losses have no ceiling, because the price can keep rising.ExampleShort 1,000 shares at $50 and you receive $50,000. Buy them back at $40 and you keep $10,000 before borrow costs; if the stock goes to $90 instead, you lose $40,000.See also Long/short equity, Hedging

Markets and macro15

Basis point (bps)

One hundredth of a percentage point, or 0.01%. A rate that moves from 4.25% to 4.50% has risen 25 basis points.ExampleA loan priced at SOFR + 350 bps with SOFR at 4.30% pays 7.80%. On a $100m loan, each basis point is worth $10,000 a year.See also DV01, Credit spread

Bull and bear markets (bull market, bear market)

A bull market is a sustained rise in prices. A bear market is commonly defined as a fall of 20% or more from a recent high.ExampleAn index peaks at 5,000 and falls to 3,900, a 22% drop, so it is in a bear market. A fall to 4,200, 16%, would only be a correction.See also Risk-on and risk-off, VIX

Consumer price index (CPI)

The monthly government measure of price changes for a basket of consumer goods and services, the headline US inflation number. Core CPI leaves out food and energy. The Fed's 2% target is set on a related index, PCE.ExampleCPI moving from 300.0 to 309.0 over a year is 3.0% inflation. If core CPI rose 3.5% over the same year, food and energy prices rose more slowly than everything else.See also Federal Open Market Committee, Hawkish and dovish, Federal funds rate

Federal funds rate (fed funds)

The overnight rate at which banks lend reserves to each other, which the Federal Reserve steers within a target range. It anchors short-term borrowing costs across the economy.ExampleThe FOMC cuts the target range from 4.25% to 4.50% down to 4.00% to 4.25%. Loans priced off SOFR reset about 25 bps lower within days, and money market fund yields follow.See also Federal Open Market Committee, Secured Overnight Financing Rate, Yield curve

Federal Open Market Committee (FOMC)

The Fed committee that sets the federal funds target range. It meets eight times a year, and traders read the statement, the press conference, and the dot plot of members' rate projections closely.ExampleThe statement leaves the target range at 4.00% to 4.25%, but the dot plot shows two cuts next year instead of three. Two-year yields rise as traders price fewer cuts.See also Federal funds rate, Hawkish and dovish, Quantitative easing

Gross domestic product (GDP)

The total value of goods and services produced in a country over a period. US GDP is reported quarterly as an annualized growth rate. Two negative quarters in a row is common shorthand for a recession, though not the official definition.ExampleReal GDP grows 0.5% in a quarter. The headline reports it annualized, about 2.0%, since 1.005 to the fourth power is about 1.020.See also Nonfarm payrolls, Consumer price index

Hawkish and dovish (hawkish, dovish)

Hawkish means leaning toward higher rates to fight inflation; dovish means leaning toward lower rates to support growth and jobs. Markets react to small shifts in a Fed official's tone.ExampleA Fed governor says inflation is still too high and the Fed may need to do more. That is hawkish, and two-year Treasury yields can rise a few basis points within minutes.See also Federal Open Market Committee, Federal funds rate, Consumer price index

Inverted yield curve

When short-term Treasury yields are above long-term ones, for example the 2-year yielding more than the 10-year. It has come before most US recessions, though the lag is long and varies.ExampleThe 2-year Treasury yields 4.8% and the 10-year yields 4.2%, so the 2s10s spread is -60 bps. The curve is inverted.See also Yield curve, Treasury securities

Nonfarm payrolls (NFP, jobs report)

The monthly count of US jobs added outside farming, published by the Bureau of Labor Statistics, usually on the first Friday of the month. It is one of the biggest scheduled market-moving releases.ExampleEconomists expect 150,000 jobs and the report shows 250,000. Traders read a stronger economy and fewer rate cuts, and Treasury yields jump seconds after the 8:30 a.m. Eastern release.See also Gross domestic product, Federal Open Market Committee

Quantitative easing (QE)

A central bank buying large amounts of government bonds and mortgage securities to push long-term rates down when short-term rates are already near zero. Shrinking those holdings again is called quantitative tightening.ExampleA central bank buys $80bn of Treasuries a month. With fewer bonds left for everyone else, prices rise and long-term yields fall, which pulls mortgage rates down too.See also Federal Open Market Committee, Treasury securities, Yield curve

Risk-on and risk-off (risk-on, risk-off)

Shorthand for market mood. Risk-on means investors are buying stocks, high-yield bonds, and emerging markets; risk-off means they are moving into Treasuries, the dollar, gold, or the yen.ExampleOn a risk-off day, the S&P 500 falls 2%, high-yield spreads widen 25 bps, the 10-year Treasury yield drops 10 bps, and the yen strengthens.See also VIX, Bull and bear markets

Secured Overnight Financing Rate (SOFR)

The benchmark US overnight rate, based on Treasury repo trades and published by the New York Fed. It replaced LIBOR, so most US floating-rate loans now pay SOFR plus a spread.ExampleA leveraged loan pays SOFR + 3.25%. With SOFR at 4.30% the borrower pays 7.55%; if SOFR falls to 3.80%, the rate drops to 7.05% with no new paperwork.See also Repo, Interest rate swap, Federal funds rate

Treasury securities (Treasuries)

Debt issued by the US government: bills (one year or less), notes (2 to 10 years), and bonds (20 and 30 years). Their yields are the risk-free benchmark most other assets are priced against.ExampleA 3-month bill bought at $98.90 pays $100 at maturity: $1.10 of interest, about 4.4% a year. A 10-year note pays a coupon every six months instead and returns its face value at maturity.See also Yield curve, Credit spread, Duration

VIX

Cboe's index of expected 30-day volatility in the S&P 500, calculated from option prices. It tends to jump when stocks fall, which is why people call it the fear gauge.ExampleA VIX of 16 means options price the S&P 500 to move about 16% a year, or roughly 1% a day, since 16 divided by the square root of 252 trading days is about 1.See also Implied volatility, Risk-on and risk-off

Yield curve

A chart of Treasury yields across maturities, from one month to 30 years. It normally slopes upward because lenders want more return for locking money up longer.ExampleThe 2-year at 3.5%, the 10-year at 4.2%, and the 30-year at 4.7% make a normal, upward-sloping curve. The 10-year minus the 2-year, 70 bps, is the 2s10s spread traders quote.See also Inverted yield curve, Treasury securities, Federal funds rate

Quant12

Arbitrage

Locking in a riskless profit from prices that are inconsistent with each other, by buying the cheap side and selling the rich one at the same time. True arbitrage is rare and quickly competed away; most trades called arbitrage carry some risk.ExampleA share trades at $40.00 on one exchange and $40.05 on another. Buying on the first and selling on the second locks in $0.05 a share before fees.See also Statistical arbitrage, Put-call parity, Market maker

Black-Scholes model (Black-Scholes-Merton)

The classic formula for pricing European options from the stock price, strike, time to expiry, risk-free rate, and volatility. Its assumptions, such as constant volatility and no jumps, fail in practice, but it is the common language of options markets.ExampleA one-year at-the-money call on a $100 stock with 20% vol and a 0% rate is worth about $8. A quick check: 0.4 x price x vol x the square root of time = 0.4 x 100 x 0.2 x 1 = $8.See also Implied volatility, Call option, Monte Carlo simulation

Conditional probability

The chance of an event once you know another has happened: P(A given B) = P(A and B) / P(B). Most quant brainteasers turn on spotting what you have been told and shrinking the sample space to it.ExampleTwo dice: given the first die is even, what is the chance the sum is 8? Of 18 equally likely pairs, three work (2 and 6, 4 and 4, 6 and 2), so 3/18 = 1/6.See also Bayes' theorem, Expected value

Correlation

A number from -1 to 1 for how closely two quantities move together. Below 1, combining assets lowers portfolio risk, which is the arithmetic behind diversification.ExampleTwo assets each with 20% volatility, held 50/50 with zero correlation, give a portfolio volatility of the square root of (0.25 x 0.04 + 0.25 x 0.04), about 14.1%, not 20%.See also Standard deviation, Beta, Linear regression

Expected value

The probability-weighted average outcome. A bet that pays $10 with probability 0.3 and nothing otherwise has an expected value of $3. Quant interviews test it constantly with dice, cards, and betting games.ExampleRoll one die and get paid the number in dollars: the expected value is (1 + 2 + 3 + 4 + 5 + 6) / 6 = $3.50. Pay $3 to play and you have a 50 cent edge per roll.See also Kelly criterion, Market-making game

Market-making game

A quant trading interview exercise: the interviewer asks you for a two-sided market on an uncertain number, like the sum of three dice, and trades against you. It tests estimation, updating on new information, and risk control under pressure.ExampleAsked for a market on the sum of three dice, you quote 9 at 12 around the 10.5 expected value. Told one die shows a 6, the expected sum is 6 + 7 = 13, so you move to 12 at 14.See also Market maker, Expected value, Quant trader

Order book (limit order book)

The live list of resting buy orders (bids) and sell orders (offers) for a security, by price and size. A market order fills against the best prices first and walks down the book if it is larger than the size shown there.ExampleBest offer 100.02 for 300 shares, next 100.05 for 1,000. A market buy for 400 fills 300 at 100.02 and 100 at 100.05.See also Bid-ask spread, Market maker, Slippage

Put-call parity

For European options with the same strike and expiry: call minus put equals the stock price minus the present value of the strike. If prices break it, a riskless trade locks in the difference.ExampleStock at 100, strike 100, rates at zero, so call and put should cost the same. If the call is 7 and the put 5, sell the call, buy the put, and buy the stock for 98: the package is worth 100 at expiry whatever happens.See also Call option, Put option, Arbitrage

Quant trader

A trader who runs systematic or semi-systematic strategies: setting parameters, managing risk, and making quick calls with models in hand. Firms like Jane Street, SIG, and Optiver hire undergraduates straight into this seat.ExampleA trader runs an options market-making strategy. When a large order moves implied vol 3 points in a minute, she decides whether to widen quotes, cut size, or hedge with the underlying.See also Quant researcher, Market-making game, Market maker

Random walk

A path built from independent random steps. Its expected position stays where it started, but its spread grows with the square root of the number of steps. It is the simplest model of a price with no predictable direction.ExampleFlip a fair coin 100 times, gaining $1 on heads and losing $1 on tails. The expected result is $0 and the standard deviation is the square root of 100, or $10.See also Standard deviation, Mean reversion, Monte Carlo simulation

Slippage

The gap between the price a trade was expected to get and the price it actually got, from the spread, market impact, or prices moving before the fill. Backtests that ignore it overstate returns.ExampleA strategy expects to buy 10,000 shares at $50.00 and averages $50.06. Slippage is $0.06 a share, or $600 on the trade.See also Order book, Backtest, Bid-ask spread

Standard deviation (variance)

How widely outcomes spread around their average: the square root of the variance, which is the average squared distance from the mean. For returns it is what traders call volatility, and it scales with the square root of time.ExampleA stock with a 1% daily standard deviation has about 1% x the square root of 252, or roughly 16%, annual volatility.See also Correlation, Sharpe ratio, Implied volatility

Credit and restructuring4

Credit rating (investment grade)

A grade from an agency such as S&P, Moody's, or Fitch on how likely a borrower is to default. BBB- at S&P (Baa3 at Moody's) and above is investment grade; anything lower is high yield.ExampleAn issuer cut from BBB- to BB+ falls out of investment grade. Funds that may hold only investment grade bonds have to sell, and its spread can widen sharply in days.See also High-yield bond, Credit spread

Credit spread

The extra yield a bond pays over a Treasury of similar maturity, to compensate for default risk and lower liquidity. A corporate bond yielding 6.5% when the matching Treasury yields 4.5% has a 200 basis point spread.ExampleA five-year BB bond yields 7.25% while the five-year Treasury yields 4.00%: a 325 bp spread. If spreads tighten 50 bps with Treasuries unchanged, the bond yields 6.75%.See also Basis point, Credit rating, Yield to maturity

High-yield bond (junk bond, HY)

A bond rated below investment grade, meaning below BBB- at S&P. It pays more interest because default risk is higher, and it is often issued to fund leveraged buyouts.ExampleA sponsor funds an LBO with $500m of 8-year B-rated bonds at 8.5% while investment grade bonds of similar maturity pay 5.5%. The 300 bp gap is the price of the extra default risk.See also Credit rating, Credit spread, Leveraged buyout

Yield to maturity (YTM)

The annual return a bondholder earns buying at today's price and holding to maturity, assuming every payment is made. Price and yield move in opposite directions, so a bond bought below par yields more than its coupon.ExampleA one-year bond with a 5% coupon trades at 98 and pays 105 at maturity. Its yield to maturity is 105 / 98 - 1, about 7.1%, above the coupon because it was bought below par.See also Credit spread, Duration, Distressed debt

Funds and investing2

Exchange-traded fund (ETF)

A fund that holds a basket of securities and trades on an exchange like a single stock. Most track an index at low cost, such as an S&P 500 fund.ExampleAn S&P 500 ETF with a 0.03% expense ratio costs $3 a year on $10,000 invested, and you can buy or sell it at any point in the trading day like a single stock.See also Assets under management

Global macro

A hedge fund strategy that bets on big economic themes through rates, currencies, commodities, and equity indexes. A macro trader might buy Treasuries expecting the Fed to cut faster than the market is pricing.ExampleA macro PM expects the Fed to cut 100 bps next year while futures price only 50. She buys two-year Treasury futures; if the extra cuts arrive, two-year yields fall and the position pays.See also Hedge fund, Federal Open Market Committee, Treasury securities

M&A and deals1

Underwriting

A bank's role in a securities offering: it commits to buy or sell the shares or bonds, markets them to investors, and takes on risk in exchange for a fee called the underwriting spread.ExampleBanks agree to buy $1bn of bonds at 99.0 and sell them to investors at 100.0. The 1 point is a $10m spread; if demand is weak and they have to sell below 99.0, they take the loss.See also Initial public offering, Follow-on offering, High-yield bond