Finance Glossary

A quick-reference index of financial terms defined across this vault. Each entry gives a one-line definition and links to the note where the concept is explained in depth. Use this page when you encounter a term mid-note and want to look it up without breaking your reading flow.

How to use this glossary

Ctrl/Cmd-F to search. Terms are grouped into three sections: acronyms, technical terms, and named models. Within each section, entries are alphabetical.

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Acronyms

Acronym	Expansion	Definition	Defined in
AMM	Automated Market Maker	A smart contract that holds a pool of two tokens and uses a mathematical formula to set the price automatically	constant-product-amm
APA	Approved Publication Arrangement	EU post-trade reporting mechanism under MiFIR Art. 21	trading-venues
APR	Annual Percentage Rate	Annualized fee return for LP positions: $365\times \gamma \times V_d/L$	lp-profitability
ATS	Alternative Trading System	Meets the SEC Rule 3b-16 exchange definition but registers as a broker-dealer under Reg ATS instead of as an exchange	trading-venues
CCP	Central Counterparty	Becomes the counterparty to every trade via novation; manages margin and mutualizes default risk	settlement-and-clearing
CDS	Credit Default Swap	Insurance-like contract that pays out if a reference entity defaults on its debt	aig-and-the-cds-crisis
CLOB	Central Limit Order Book	The displayed order book where limit orders rest and match according to price-time priority	order-books
CNS	Continuous Net Settlement	NSCC’s core system that nets all of a participant’s trades in each security into a single net long or net short position each day	settlement-and-clearing
CSA	Credit Support Annex	Addendum to ISDA master agreement specifying when and how much collateral each party must post	aig-and-the-cds-crisis
CSD	Central Securities Depository	The authoritative record of who owns what; processes settlement	settlement-and-clearing
DMM	Designated Market Maker	The specialist firm assigned to a stock on NYSE, with obligations for continuous two-sided quotes	trading-fundamentals
DRS	Draft Registration Statement	Confidential S-1 submission mechanism under the JOBS Act	ipo-process
DTCC	Depository Trust & Clearing Corporation	Parent of NSCC and DTC; operates clearing and settlement infrastructure for US equities	settlement-and-clearing
DvP	Delivery versus Payment	Both legs (securities and cash) move simultaneously or neither does	settlement-and-clearing
EDGAR	Electronic Data Gathering, Analysis, and Retrieval	The SEC’s public database of all SEC filings	ipo-process
EGC	Emerging Growth Company	Revenue under $1.235B, as defined by the JOBS Act of 2012; may file only 2 years of audited financials	ipo-process
EMIR	European Market Infrastructure Regulation	EU Regulation No 648/2012 — mandatory clearing, trade repository reporting, bilateral margin requirements for non-cleared derivatives	aig-and-the-cds-crisis
FINRA	Financial Industry Regulatory Authority	Self-regulatory organization for US broker-dealers	market-fundamentals
IL	Impermanent Loss	The cost an LP pays for holding assets inside a constant-product pool rather than simply holding them in a wallet	impermanent-loss
IOI	Indication of Interest	Non-binding quantity (and sometimes max price) submitted by institutional investors during IPO book building	ipo-process
IS	Implementation Shortfall	The gap between the paper return (trading instantly at the decision price) and the actual return after execution costs, impact, and drift (Perold 1988)	trade-types
ISDA	International Swaps and Derivatives Association	The standard contract template (ISDA master agreements) for OTC derivatives	aig-and-the-cds-crisis
JIT	Just-In-Time (liquidity)	MEV strategy: a searcher mints a concentrated liquidity position just before a large pending swap, earns trading fees, then removes the position immediately after	mev-fundamentals
LIS	Large-in-Scale (waiver)	EU dark-trading waiver for orders above a size threshold under MiFIR Art. 4	trading-venues
LP	Liquidity Provider	Someone who deposits tokens into a pool so others can trade; receives LP tokens representing a pro-rata claim on reserves	constant-product-amm
MEV	Maximal Extractable Value	The total value that can be extracted from block production beyond the standard block reward and gas fees, via reordering or injecting transactions	mev-fundamentals
MTF	Multilateral Trading Facility	MiFID II Art. 4(1)(22); multilateral, non-discretionary venue that can be run by investment firms — the EU vehicle for competition against incumbent exchanges	trading-venues
NBBO	National Best Bid and Offer	The best available bid and ask across all lit exchanges, consolidated by the SIP	trading-fundamentals
NSCC	National Securities Clearing Corporation	DTCC subsidiary; the CCP for US equities that performs novation, netting, and margin collection	settlement-and-clearing
OCC	Options Clearing Corporation	Becomes the counterparty to listed options via novation	market-fundamentals
OTF	Organised Trading Facility	MiFID II Art. 4(1)(23); multilateral system for non-equity instruments only where discretionary execution is permitted	trading-venues
PBS	Proposer-Builder Separation	Ethereum’s formalized separation of block building from block proposing	mev-fundamentals
PFOF	Payment for Order Flow	The practice where a retail broker routes customer orders to a wholesaler in exchange for a per-share rebate	trade-types
PGA	Priority Gas Auction	Bots outbidding each other for ordering priority by raising gas prices (pre-Flashbots Ethereum)	mev-fundamentals
PvP	Payment versus Payment	Neither currency leg moves unless both move; the FX equivalent of DvP, implemented by CLS Bank	settlement-and-clearing
RM	Regulated Market	MiFID II Art. 4(1)(21); a multilateral system operated by a market operator with non-discretionary rules — EU equivalent of a US exchange	trading-venues
RPW	Reference Price Waiver	EU dark-trading waiver under MiFIR Art. 4; allows matching at midpoint of a reference market	trading-venues
RTGS	Real-Time Gross Settlement	A payment system where each transaction settles individually and immediately (e.g., Fedwire)	settlement-and-clearing
SDR	Swap Data Repository	All swaps must be reported to SDRs under Dodd-Frank §729	aig-and-the-cds-crisis
SEF	Swap Execution Facility	Registered venue where cleared swaps must be traded; the swaps equivalent of an ATS (Dodd-Frank §724)	aig-and-the-cds-crisis
SI	Systematic Internaliser	MiFID II Art. 4(1)(20); an investment firm that deals on own account when executing client orders outside any multilateral venue	trading-venues
SIFMU	Systemically Important Financial Market Utility	US designation for CCPs receiving enhanced supervision and central bank backstops	settlement-and-clearing
SIP	Securities Information Processor	Consolidates quotes from all lit exchanges into a single NBBO	trading-fundamentals
SLP	Supplemental Liquidity Provider	Exchange role with quoting obligations in exchange for reduced fees and information advantages	trading-fundamentals
SOX	Sarbanes-Oxley (Act)	Enacted 2002 after Enron and WorldCom; requires CEO/CFO certification of financials, internal controls audits, and whistleblower protections	ipo-process
TRF	Trade Reporting Facility	FINRA-operated system that publishes off-exchange trades to the consolidated tape	trade-types
TVL	Total Value Locked	The total dollar value deposited in a DeFi pool; $L$ in the LP break-even formula	lp-profitability
TWAP	Time-Weighted Average Price	The average price over the execution window, each moment weighted equally regardless of volume	trade-types
VaR	Value at Risk	The loss threshold at a given confidence level (e.g., “99% 1-day VaR of $5M"meansthereisa1$5M in a day)	settlement-and-clearing
VRP	Volatility Risk Premium	The empirical tendency of implied vol to exceed realized vol: ${\sigma }_{\text{implied}}-{\sigma }_{\text{realized}}>0$ on average	volatility
VWAP	Volume-Weighted Average Price	The average price at which a stock traded during the day, weighted by volume at each price	trade-types

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Technical terms

Term	Definition	Defined in
adverse selection	Being on the wrong side of informed trades — the market maker systematically sells cheap to buyers who know the price is about to rise	glosten-milgrom-model
backwardation	Futures price < spot price; occurs when there is a convenience yield from holding the physical commodity now	market-fundamentals
basis points (bps)	1 bp = 0.01%; e.g., 30 bps = 0.30%	market-fundamentals
bid-ask spread	Ask − Bid; the total round-trip cost of immediacy	trading-fundamentals
block trade	A transaction large enough to move the market if exposed to the displayed book (traditionally 10,000+ shares or $200,000+ notional)	trade-types
bonding curve	A primary market mechanism — a smart contract that mints and sells new tokens along a deterministic price schedule; every buy mints, every sell burns	bonding-curves
book building	The underwriter solicits indications of interest from institutional investors, builds a demand curve, and sets the offering price	ipo-process
builder	Aggregates bundles from multiple searchers into complete blocks, optimizing for total extracted value	mev-fundamentals
consolidated tape	The public record of all executed trades, consolidated from all venues	trading-fundamentals
contango	Futures price > spot price; the normal state when storage costs dominate	market-fundamentals
convenience yield	The implicit benefit of having the physical commodity in hand (e.g., during supply shortages)	market-fundamentals
cost of carry	Total cost of holding an asset: storage, insurance, and financing minus any income (dividends, coupons, convenience yield)	market-fundamentals
dark pool	Any venue or mode that does not display quotes pre-trade (no pre-trade transparency)	trading-venues
execution price	The average price actually paid across an entire trade, as opposed to the marginal/quoted price	constant-product-amm
flow segmentation	Wholesalers cream-skim uninformed (benign) flow, leaving informed (toxic) flow to lit exchanges where market makers price adverse selection into wider spreads	trade-types
graduation	The on-chain event where a bonding curve token transitions to a constant-product AMM pool (at ~85 SOL threshold on Pump.fun)	bonding-curves
greenshoe	Over-allotment option (named after Green Shoe Manufacturing Co., 1963); the underwriter sells 115% of planned shares and covers the short via the option or open-market purchases	ipo-process
gross spread	The underwriter’s IPO fee as a percentage of total proceeds (famously sticky at 7% for mid-sized US IPOs)	ipo-process
Herstatt risk	Principal risk in FX settlement — you deliver your currency but never receive the other, because the two legs settle in different jurisdictions on different timelines	settlement-and-clearing
HODL	”Hold On for Dear Life” — crypto slang for simply holding tokens without trading or depositing them	impermanent-loss
impermanent loss	The cost an LP pays for holding assets inside a constant-product pool rather than holding in a wallet; $\text{IL}(r)=2\sqrt{r}/(r+1)-1$	impermanent-loss
initial margin (IM)	Collateral posted at trade inception; covers the CCP’s potential future exposure if a member defaults, calibrated to a 2-day liquidation period at 99% confidence	settlement-and-clearing
implied volatility	The volatility value that, when plugged into an option pricing model, produces the option’s current market price — the market’s consensus forecast of future movement	volatility
internalization	A broker-dealer filling client orders from its own inventory rather than routing to an exchange	trading-venues
lock-up	For 180 days after an IPO, company insiders are contractually prohibited from selling their shares	ipo-process
marginal price	The current quoted price — what you’d pay for an infinitesimally small trade; equals $y/x$ for a constant-product pool	constant-product-amm
market impact	The cost of demanding liquidity now — your own buying pushes the price up against you	trade-types
mempool	Memory pool — a holding area where each node stores unconfirmed transactions; public on Ethereum, semi-private on Solana	blockchain-transaction-lifecycle
netting	The CCP computes each participant’s net position, reducing gross obligations by ~98% for US equities	settlement-and-clearing
novation	The CCP legally extinguishes the original bilateral contract and replaces it with two new contracts — one with each side	settlement-and-clearing
price improvement	The difference between the NBBO and the better price at which a wholesaler fills a retail order	trade-types
price-time priority	An incoming order first matches against the best available price; among orders at the same price, the earliest arrival wins	order-books
program trade	A basket trade moving an entire portfolio at once — historically 15+ names totaling $1M+ in notional	trade-types
quiet period	For 25 days after an IPO, the underwriting syndicate’s research analysts cannot publish research on the company	ipo-process
realized volatility	Historical volatility; the annualized standard deviation of log-returns computed from actual past prices	volatility
red herring	The preliminary prospectus distributed during the IPO roadshow, named for its red-ink disclaimer	ipo-process
riskless principal	The broker finds a fill first, then books an offsetting trade to the client — momentarily stands between two sides but never holds a net position	trade-types
sandwich attack	Attacker front-runs a pending trade to move the price, lets the victim trade at a worse price, then back-runs to capture the difference	sandwich-attacks
searcher	A bot that monitors the mempool for MEV opportunities, constructs transaction bundles, and pays builders/validators for ordering priority	mev-fundamentals
settlement fail	When one party does not deliver its obligation on the contractual settlement date; roughly 2% of US equity trades fail	settlement-and-clearing
short gamma	A position that loses proportionally to the square of the price move; $\text{loss}\approx \frac{1}{2}\Gamma (\Delta S{)}^2$	the-greeks
slippage tolerance	The maximum price deviation a trader will accept; bounds the attacker’s extraction in a sandwich attack	sandwich-attacks
stabilization	Post-IPO activity (up to ~30 days) under Regulation M Rule 104 where the lead underwriter buys shares to prevent the price from falling below the offer price	ipo-process
variation margin (VM)	Collected/paid daily; reflects the mark-to-market change in the portfolio to prevent loss accumulation	settlement-and-clearing
volatility clustering	Volatility is autocorrelated: high-vol days tend to follow high-vol days, and calm periods tend to persist (Mandelbrot, 1960s)	volatility

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Named models and frameworks

Model	Key idea	Defined in
Almgren-Chriss (2000)	Optimal execution: minimizes $E[\text{cost}]+\lambda \cdot \text{Var}[\text{cost}]$ to find the trading trajectory that trades off urgency cost against impact cost	trade-types
Black-Scholes (1973)	Closed-form pricing for European options given stock price, strike, time to expiry, risk-free rate, and volatility	volatility
Glosten-Milgrom (1985)	The spread as a defense against informed traders: the market maker updates beliefs via Bayesian inference based on the direction of incoming orders	glosten-milgrom-model
Ho-Stoll (1981)	Inventory risk model: spread width is $\gamma {\sigma }^2$ (risk aversion × volatility); quote midpoint shifts away from accumulated inventory	ho-stoll-inventory-model
Huang-Stoll (1997)	Empirical spread decomposition: splits the observed half-spread into adverse selection ($\alpha$), inventory ($\beta$), and order processing ($1-\alpha -\beta$)	spread-decomposition
Kyle (1985)	Price impact coefficient $\lambda ={\sigma }_v/(2{\sigma }_u)$; measures how much the price moves per unit of net order flow	kyle-lambda

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Not yet defined in the vault

These terms appear in notes but lack an inline definition. They are candidates for future notes or inline glosses:

• maker-taker — fee model where exchanges pay rebates to limit-order providers (makers) and charge fees to market-order senders (takers). Listed as a future Track B note (B6) in the study-guide.

See also

• study-guide — recommended reading order for the finance notes
• Finance index — top-level module map